INSOLVENCY LAW CASES JANUARY TO END JULY 2016

(Cases were researched on SALR, SACR, All SA Law Reports, SAFLII, JOL and JDR.1 Cases include business rescue cases, securities and the Companies Act, 2008.)

CONTENTS:

SUBJECT INDEX OUTLINE

Subject Index

Case Names

Case summaries

SUBJECT INDEX OUTLINE

A Insolvency Law

A1 Voluntary Surrender

A2. Compulsory Sequestration

A3. Effect of Sequestration-Assets and exempted assets

A4 Effect of Sequestration-Voidable dispositions (including companies)

A5 Administration of the insolvent estate

A6 Rehabilitation

B CORPORATE INSOLVENCY LAW: LIQUIDATION (WINDING-UP) OF COMPANIES AND CLOSE CORPORATION

B1 Voluntary Liquidation of companies

B2 Liquidation by court order in terms of the 1973 Companies Act, read with the Companies Act 71 of 2008

B3 Close corporations-liquidations

B4 Administration of the insolvent company/cc

B5 Administration of the insolvent company/cc-Interrogations

1 JDR=Juta’s unreported online, from May 2013.

C STATUTORY “FRESH START” PROCEDURES: B USINESS RESCUE AND COMPROMISES

C1Business rescue in terms of Chapter 6 of the 2008 Companies Act

C2 Compromises

D1 COMPANIES ACT AND CLOSE CORPORATIONS IN GENERAL

E SECURITIES IN GENERAL

END OF OUTLINE

SUBJECT INDEX

A Insolvency Law

A1 Voluntary Surrender

Voluntary surrender — Application — Multiple applications brought on batch basis — Permissible, provided applications dealt with on merits, were bona fide, and not shoehorned into predetermined formula designed only to achieve a favourable result. Ex Parte Concato and similar cases 2016 (3) SA 549 (WCC)

Voluntary surrender — Application — Requirement that surrender be brought in good faith — Where outcome of order of voluntary surrender predetermined — Lack of good faith. Ex Parte Concato and similar cases 2016 (3) SA 549 (WCC)

Voluntary surrender — Application — Requirement that surrender be to advantage of creditors — Strong likelihood that order of voluntary surrender would result in buy-back agreement under which insolvent would buy back assets at forced-sale value in instalments — Unlikely to be in best interests of body of creditors. Ex Parte Concato and similar cases 2016 (3) SA 549 (WCC)

Voluntary surrender – Formulaic applications – Bona fides and advantage to creditors – Court held that provided that the process was conducted in accordance with the law, the interests of the general body of creditors were given due and proper consideration, and such application was dealt with by the practitioner on its merits, was bona fide, they should not be dismissed due to the manner in which the attorney dealt with them – In casu, it was found that insolvent retains the use of all his assets, and eventually reaches an arrangement with the trustee to purchase them back, and is immune from his existing creditors by virtue of the voluntary surrender order which has been granted. Ex parte Concato and similar matters [2016] 2 All SA 519 (WCC)

Voluntary surrender-no advantage to creditors-attorney moves similar applications-insolvent to buy property back-refused. Ex parte: Connoway and Four Others (5873/2016, 6168/2016, 6167/2016, 6166/2016, 6002/2016) [2016] ZAWCHC 62 (24 May 2016)

A2. Compulsory Sequestration

Provisional sequestration – Application for final order. Voltex (Pty) Limited trading as Voltex Bramley v Mnguni [2016] JOL 35898 (GJ)

Application for sequestration-nulla bona-sheriff did not execute the writ of execution-application dismissed-only return that was filed, was signed by Mr Barkhuizen-On Mr Barkhuizen's own version he was never duly appointed as a deputy sheriff and never

had the authority to fulfil the duties of a deputy sheriff. Absa Bank Ltd v Van Zyl NO and Another (35976/2015) [2016] ZAGPPHC 247 (22 April 2016)

Sequestration application- attorney’s estate- s.8 (b) of the Insolvency Act 24 of 1936 - nulla bona return-immaterial that nulla bona six months old-Investec Bank Limited v Le Roux (575/2014) [2016] ZAGPJHC 11 (11 February 2016)

Sequestration application- employee misappropriated money-unliquidated claim-Badenhorst rule applied2 Avantech Ltd v Fryer and Another (70750/14) [2016] ZAGPPHC 49 (5 February 2016)

Sequestration application- section 149- 12 months referred to in section 149 of the Act determining the jurisdiction of the court in sequestration proceedings for the lodging of the petition- how calculated Stander v Van den Berg (60296/2013) [2016] ZAGPPHC 7 (21 January 2016)

Sequestration application-advantage to creditors-no assets but many allegations of assets being hidden-granted Stander v Van den Berg (60296/2013) [2016] ZAGPPHC 7 (21 January 2016)

Sequestration application-liquidated claim-but basically claim for damages-can be determined. Avantech Ltd v Fryer and Another (70750/14) [2016] ZAGPPHC 49 (5 February 2016)

Sequestration application-benefit-trust to be sequestrated-opposed application-denial of joint venture false-order granted Osborne v Cockin and Others; Osborne v Cockin N.O. and Others (5618/2015, 6053/2015) [2016] ZAECGHC 19 (12 April 2016)

A3. Effect of sequestration-Assets and exempted assets

Creditors-rights-applying for sale of business as a going concern-application dismissed Liu v Roering NO and Another (25713/2016) [2016] ZAGPPHC 205 (15 April 2016)

Administrative law – Property – Section 118(3) of the Local Government: Municipal Systems Act 32 of 2000 – Interpretation of – Whether security provided for in section 118(3) in favour of a municipality, for moneys owed to it for services delivered in respect of fixed property, is extinguished when the property is sold at a sale in execution and subsequently transferred to the purchaser – Debt not extinguished on transfer of property, but municipality must comply with jurisdictional requirements in terms of own by-laws before pursuing owner for debt. City of Tshwane Metropolitan Municipality v Mitchell [2016] 2 All SA 1 (SCA)

2 This “rule” has become popular recently, see Orestisolve (Pty) Ltd t/a Essa Investments v NDFT Investments Holdings (Pty) Ltd and another 2015 (4) SA 449 (WCC)

A4 Effect of sequestration-Voidable dispositions (including companies)

Voidable dispositions — Voidable preference — Interest — Debt created when court sets aside disposition and declares right to recover property — Mora begins and mora interest runs from this date — Insolvency Act 24 of 1936, s 32(3). Griffiths v Janse Van Rensburg and another NNO 2016 (3) SA 389 (SCA)

Voidable dispositions — Voidable preference — What constitutes — Semble: Payment under condictio ob turpem vel iniustam causam could be disposition in ordinary course of business — Insolvency Act 24 of 1936, s 29(1). Griffiths v Janse Van Rensburg and another NNO 2016 (3) SA 389 (SCA)

Dispositions- Liquidation of pyramid scheme – Consolidation of corporate entities Zwarts v Janse van Rensburg NO and others [2015] JOL 33678 (SCA)

Dispositions- Setting aside of dispositions in terms of section 29 of the Insolvency Act 24 of 1936 – Whether impugned dispositions were made in the ordinary course of business – Test is whether ordinary, solvent, businesspeople would, in similar circumstances, themselves act as did the parties to the transaction – Dispositions made pursuant to void agreement not satisfying test and fell to be set aside. Griffiths v Janse van Rensburg NO and another [2016] 1 All SA 643 (SCA)

Voidable dispositions- Motion proceedings-for voidable preferences-allowed Button NO and others v Akbur and others [2016] JOL 34153 (KZD)

A5 Administration of the insolvent estate

Claims-employees-starting date of suspension-section 38(1) of the Insolvency Act, 24 of 1936-section 339 of the Companies Act 61 of 1973-suspended with effect from the date of the granting of a provisional or final liquidation order (if no provisional order was granted)- not from date of the presentment of the application for liquidation. Ngwato v Van der Merwe NO (2014/28470) [2016] GJ (6 May 2016)

Claims-investigating of-after being proved-a liquidator to a creditor’s substantiation of its claim in terms of s.45(3) of the Insolvency Act   24 of 1936 -liquidator and Master ordered to accept more information. Constantia Insurance Company Limited v Master of the High Court, Johannesburg and Others (23968/2015) [2016] ZAGPJHC 121 (13 May 2016)

Costs-unpaid municipality costs-debt incurred by a previous owner for municipal services supplied prior to transfer and the interpretation of s 118(3) of the Local Government: Municipal Systems Act, 32 of 2000 (the Act). City of Tshwane Metropolitan Municipality v PJ Mitchell (38/2015) [2016] ZASCA 1 (29 January 2016)

Cross-border insolvency – Recognition of foreign trustee – While a foreign trustee seeking recognition in South Africa must ordinarily establish that the insolvent party was domiciled within the jurisdiction of the foreign court that appointed him, that is not an inflexible rule, and in exceptional circumstances the requirement of domicile

will not be insisted upon. Lagoon Beach Hotel (Pty) Ltd v Lehane NO and others [2016] 1 All SA 660 (SCA)

Insolvent person-Claim by insolvent on behalf of his insolvent estate for the payment of damages by his trustees in terms of s 82(8) of the Insolvency Act 24 of 1936 – section 82(8) does not find application where the trustees sold immovable properties of the estate prior to the second meeting of creditors – sale of the immovable properties of the estate valid and enforceable – claim for damages dismissed. Swart v Starbuck and Others (20785/2014) [2016] ZASCA 83 (30 May 2016)

Insolvent person-has a reserved right in certain circumstances with rgards to his estate. Swart v Starbuck and Others (20785/2014) [2016] ZASCA 83 (30 May 2016)

Interest – Mora interest – Payment of mora interest on an award setting aside such disposition under section 32(3) of the Insolvency Act 24 of 1936 – Concept of mora relates to the time at which an obligation is due – Debt arises only on judgment and no amount due before judgment, on which mora interest can run. Griffiths v Janse van Rensburg NO and another [2016] 1 All SA 643 (SCA)

Interest – In duplum rule – Where interest is capitalised and interest is charged on interest, capitalised interest does not lose its character as interest and does not become part of the capital amount for the purposes of the in duplum rule – Casey and another v FirstRand Bank Ltd [2016] JOL 33584 (SCA)

Local authority — Rates — Imposition — Township — Rates payable by township owner to be calculated over extent or remaining extent of township as single entity, not on unsold erven separately. — Municipal service charges — Municipal clearance certificate — Rates payable by township owner when erven sold — Determination of — Municipal Systems Act 32 of 2000, s 118(1). TSHWANE CITY V UNIQON WONINGS (PTY) LTD 2016 (2) SA 247 (SCA)

Prescription – extinctive prescription – delay in completion – debt object of claim filed against company in liquidation – claim withdrawn after ‘admitted to proof’ under s 44 of the Insolvency Act 24 of 1936. Whether prescription delayed in terms of s 13(1)(g) of the Prescription Act 68 of 1969. Masilo N.O and Others v Betterbridge (Pty) Limited (37/2015) [2016] ZASCA 73 (25 May 2016)

Trustee — Foreign trustee — Recognition — Requirement that insolvent be domiciled within jurisdiction of court appointing foreign trustee. Lagoon Beach Hotel (Pty) Ltd v Lehane NO a.o. 2016 (3) SA 143 (SCA)

Trustee — Property passing to trustee — Warrant to take possession of insolvent's property — Issued in circumstances where assets already under judicial attachment — Whether magistrate precluded from issuing warrant — Insolvency Act 24 of 1936, s 69(3). Naidoo and others v Kalianjee NO and others 2016 (2) SA 451 (SCA)

A6 Rehabilitation

Application to intervene – Such application not a prerequisite to a party being heard in opposition to an application for rehabilitation – Abuse of court’s process – Court dismissed application were such is without merit, not bona fide and an abuse of the process of the court. Ex parte Harris (Fairhaven Country Estate (Pty) Ltd as intervening party) [2016] 1 All SA 764 (WCC)

Application-intervening creditor-intervenes for personal reasons-vendetta-turned down Harris v Fairhaven Country Estate (Pty) Limited (9357/2015) [2016] ZAWCHC 4 (26 January 2016)

Master’s report-criticized Harris v Fairhaven Country Estate (Pty) Limited (9357/2015) [2016] ZAWCHC 4 (26 January 2016)

B CORPORATE INSOLVENCY LAW: LIQUIDATION (WINDING-UP) OF COMPANIES AND CLOSE CORPORATION

Statute — Interpretation — 'Mutatis mutandis' — Meaning 'subject to necessary alterations' — Necessary changes must be required, not merely permitted. Mayo NO v De Montlehu  2016 (1) SA 36 (SCA) 3

B1 Voluntary Liquidation of companies

B2 Liquidation by court order in terms of the 1973 Companies Act, read with the Companies Act 71 of 2008

Liquidation application-what creditor must prove-claim not bona fide disputed Nation Unlished Trading CC t/a Engennering Drawing And Design v Bulk Petroleum Supplies (Pty) Ltd (4859/2016) [2016] ZAWCHC 70 (10 June 2016)

Application for final winding up-opposed- Section 345(1)(a) of the old Companies Engen Petroleum Limited v Plastic Brown Containers (Pty) Ltd (11693/2014) [2016] ZAKZDHC 20 (10 May 2016)

B3 Close corporations-liquidations

Winding up of close corporation during period of de-registration – Winding up of close corporation automatically retrospectively validated upon reinstatement – Section 82(4) – Companies Act 71 of 2008 Reddy v ABSA Bank Limited and others [2015] JOL 33305 (SCA)

Winding-up application by shareholders – Fraudulent conduct by company directors – Section 81(1)(e), Companies Act 71 of 2008 Pinfold and others v Edge to Edge Global Investments Limited [2016] JOL 35152 (KZD)

3 Already discussed in December 2015 but now a reported case

Winding up application- untaxed bill can be used- Werksmans Incorporated v Praxley Corporate Solutions (Pty) Limited[2016] JOL 34039 (GJ)

Winding up order-discretionary power irrespective of the ground upon which the order is made. Werksmans Incorporated v Praxley Corporate Solutions (Pty) Limited[2016] JOL 34039 (GJ)

Winding up-order declaring winding up proceedings as being vexatious and frivolous and thus amounting to an abuse of the court’s procedure is discretionary. Werksmans Incorporated v Praxley Corporate Solutions (Pty) Limited[2016] JOL 34039 (GJ)

Winding-up — Application — Counterclaim that is bona fide and on reasonable grounds — Whether court has discretion to dismiss liquidation application. Gap Merchant Recycling CC v Goal Reach Trading 55 CC 2016 (1) SA 261 (WCC) 

Winding-up — Application — Debt that is basis of application bona fide disputed on reasonable grounds — Rule that winding-up precluded in these circumstances — Nature and scope of rule — Meaning of 'bona fide' and 'disputed on reasonable grounds'. Gap Merchant Recycling CC v Goal Reach Trading 55 CC 2016 (1) SA 261 (WCC) 

Winding-up application – Subordination of debt to other creditors of insolvent – Applicant a contingent creditor and was entitled to institute winding-up proceedings against the respondent ABSA Bank Limited v Hammerle Group (Pty) Ltd [2016] JOL 33570 (SCA)

B4 Administration of the insolvent company/cc

Claim against company in liquidation — Proof — Late proof — Statutory framework — Time period stipulated in s 44(1) of Insolvency Act 24 of 1936 not affected by s 366(2) of Companies Act 61 of 1973 — Three-month period for lodging of claims applying to both sequestrations and liquidations. Mayo NO v De Montlehu  2016 (1) SA 36 (SCA) 4

Claims-liquidators not satisfied with-Master allowed -Master taken on review-liquidators succeed. Van Zyl N.O and Others v Master of the High Court of South Africa, Western Cape Division, Cape Town and Another (7892/2015) [2016] ZAWCHC 51 (11 May 2016)

Directors- Aquilian action against-when possible Kingdom Films and others v Kaplan NO and another [2016] JOL 36001 (GJ)

Directors-personal lability- section 424 of the Companies Act, 1973 (Act No. 61 of 1973) (the Companies Act), alternatively in terms of section 218 (2) of the new Companies Act. Burco Civils CC v Stolz and Another (26201/15) [2016] ZAGPPHC 350 (19 May 2016)

Employees-starting date of suspension-section 38(1) of the Insolvency Act, 24 of 4 Already discussed in December 2015 but now a reported case

1936-section 339 of the Companies Act 61 of 1973-suspended with effect from the date of the granting of a provisional or final liquidation order (if no provisional order was granted)- not from date of the presentment of the application for liquidation. Ngwato v Van der Merwe NO (2014/28470) [2016] GJ (6 May 2016)

Liquidation costs-business rescue is superseded by a liquidation order- remuneration of the business rescue practitioner -paid from the free residue after the costs of sequestration set out in section 97 have been paid and cannot be paid from the proceeds of the secured asset. Diener NO v Minister of Justice (30123/2015) [2016] GP

Liquidator-duty to insurance assets-no duty on the liquidator of a company to insure assets of a wholly owned subsidiary of the company, facts not proved-Macadamia Finance BK en  'n ander v De Wet en andere NNO 1993 (2) SA 743 (A) referred to. Cilliers and others v Steenkamp and others [2016] JOL 34781 (WCC)Liquidators-Close corporation – Liquidation of – Contract signed by liquidators – Requirement that liquidators act jointly Shanmugam v Peter NO and others [2016] JOL 36072 (KZD)

Liquidators-joint liquidators-two of three signed contract-contract invalid Shanmugam v Peter N.O and Others (11638/2015) [2016] ZAKZDHC 16 (20 April 2016)

Liquidators-ordered to pay costs de bonis propriis-omitted to divulge information to the court -uberrimae fides Oelofsen NO and Another; In re: Oelofsen NO and Another v Bamboo Rock 1215 CC and Others (8949/16) [2016] ZAGPPHC 245 (21 April 2016)

Litigation by liquidators of company – Section 32(1) of the Insolvency Act 24 of 1936 – A creditor may take proceedings in terms of section 32(1)(b) only if the trustee has failed to do so, and only upon the creditor indemnifying the trustee against all the costs of the proceedings – Effect of indemnity being furnished after institution of proceedings instead of before – Object of section fulfilled in circumstances of present case Cowan v Hathorn NO and others [2016] JOL 33589 (SCA)

Piercing the corporate veil- Conduct of insolvent – Alleged fronting by trust – Anti-dissipation order – Piercing corporate veil – The corporate veil will be pierced where there is proof of fraud, dishonesty or other improper conduct in the establishment or use of a company and the conducting of its affairs – A court will not lightly disregard a corporate entity’s separate legal personality and will endeavour to maintain the separate personality Knoop NO and others v Birkenstock Properties (Pty) Ltd and others [2015] JOL 33788 (FB)

Provisional liquidator-duties- no powers to do what may amount to a liquidation of a company Knipe and Another v Noordman N.O. and Others (A230/2014) [2016] ZAFSHC 86 (2 June 2016)

B5 Administration of the insolvent company/cc-Interrogations

Interrogations-Company law ─ application for rescission of an order enabling enquiry into the affairs of a company in voluntary liquidation in terms of s 417 of the Companies Act 61 of 1973 ─ ex parte application made to enable enquiry met the requirements of s 388 of the Act ─ appeal dismissed with costs. Swart v Heine (192/15) [2016] ZASCA 16 (14 March 2016)

Interrogation-purposes-not revenge Harris v Fairhaven Country Estate (Pty) Limited (9357/2015) [2016] ZAWCHC 4 (26 January 2016)

Enquiry in terms of ss 417 and 418 of the Companies Act 61 of 1973 – summons to attend – application to set aside summons – abuse of process – what constitutes – fact that the issues canvassed may overlap with issues in pending or contemplated civil litigation not as such a ground for inferring abuse Roering NO and Another v Mahlangu and Others (581/2015) [2016] ZASCA 79 (30 May 2016)

C STATUTORY “FRESH START” PROCEDURES: B USINESS RESCUE AND COMPROMISES

C1Business rescue in terms of Chapter 6 of the 2008 Companies Act

Business rescue-application must not be an abuse of process and should be brought in good faith and for a proper purpose ie for the “rescue” of the company…and not for an ulterior motive such as to suspend liquidation or for a personal benefit.’ Loots v Nongoma Medical Centre CC and Another (5639/2016) [2016] ZAWCHC 76 (24 June 2016)

Business rescue-application one of many proceedings that have been brought by the applicant (‘Loots’) together with others whom I will mention later in this judgment. Loots v Nongoma Medical Centre CC and Another (5639/2016) [2016] ZAWCHC 76 (24 June 2016)

Business rescue- general moratorium on legal proceedings-exceptions to the moratorium -orders granted prior to the rescue-valid JVJ Logistics (Pty) Ltd v Standard Bank of South Africa Ltd and Others (7076/2015) [2016] ZAKZDHC 24 (22 July 2016)

Business rescue-s133(1)(b) of the Companies Act, 71 of 2008 (the Act)-leave to commence legal proceedings -matter moot-costs -prima facie claim -what is-Redpath case not followed Mabote and Others v Van Der Merwe NO and Another (2015/40324) [2016] ZAGPJHC 185 (8 July 2016)

Business rescue-section 133 meaning of “lawfully in its possession” JVJ Logistics (Pty) Ltd v Standard Bank of South Africa Ltd and Others (7076/2015) [2016] ZAKZDHC 24 (22 July 2016)

Business rescue-business rescue practitioner-knowledge of cancellation of franchise agreement Schickerling NO and Another v Chickenland (Pty) Ltd t/a Nando's (22712/2016) [2016] ZAGPPHC 208 (15 April 2016)

Business rescue-Ejectment application – Defence – Sections 133(1), 134(1)(c) – Companies Act 71 of 2008 Southern Value Consortium v Tresso Trading 102 (Pty) Limited (Klopper NO and another as intervening business rescue practitioners)[2015] JOL 34787 (WCC)

Business Rescue-Disposition in terms of s 341(2) of the Companies Act 61 of 1973- recoverable by creditor or whether enforcement precluded by s 154(2) of the Companies Act 71 of 2008 – whether pre-business rescue debt – meaning of ‘debt owed’. Eravin Construction CC v Bekker NO (20736/2014) [2016] ZASCA 30 (23 March 2016)

Business rescue-liquidation proceedings are suspended in terms of section 131(6) of the Companies Act 71 of 2008, there must be-service of an application for business rescue in terms of section 131 of the Companies Act 71 of 2008 on the company (provisional liquidator if appointed) and on the Companies and Intellectual Property Commission; and notification of each affected person in the prescribed manner. Standard Bank of South Africa Limited v Gas 2 Liquids (Pty) Limited(45543/2012) [2016] GJ (10 March 2016)

Business rescue — Liquidation proceedings already initiated — Scope of suspensive provision — Whether encompassing application for provisional liquidation — Conflicting views on issue highlighted — Court finding that application for business rescue suspending application for liquidation — Companies Act 71 of 2008, s 131(6). STANDARD BANK OF SOUTH AFRICA v A-TEAM TRADING CC 2016 (1) SA 503 (KZP)

Business rescue plan – Failure to consult with shareholders – Interim interdict Hlumisa Investment Holdings (RF) Limited and another v Van der Merwe NO and others [2016] JOL 34326 (GP)

Business rescue- s.131 (1) of the Companies Act 71 of 2008 -intervening creditor- provisional winding-up order granted- Pouroullis v Market Pro Investments 106 (Pty) Ltd (South African Bank of Athens Ltd and Absa Bank Ltd (20370/2015) [2016] ZAGPJHC 12 (12 February 2016)

Business rescue-s 131-opposed-liquidation order was granted prior to application-liquidation in progress Van Der Merwe and Others v Zonnekus Mansion (Pty) Ltd and Others (4653/2015B) [2016] ZAWCHC 11 (18 February 2016)

Business rescue – Resolution by director of company – Setting aside of Griessel and another v Lizemore and others [2016] JOL 34038 (GJ)

Business rescue-variation of proved claim-tantamount to variation of plan-claimant received payments -delay to object Stalcor (Pty) Ltd v Kritzinger NO and Others (1841/2012) [2016] ZAFSHC 6 (21 January 2016)

Business rescue – Adoption of business rescue plan – Application for setting aside of plan – Non-joinder – Test for non-joinder – does party have direct and substantial

interest in subject matter of litigation which may prejudice non-joined party – Creditors who would be prejudicially affected by setting aside of business rescue plan should be joined as parties to the matter. ABSA Bank Limited v Naude NO and others [2015] JOL 33323 (SCA)

Business rescue — Moratorium on legal proceedings against company — Where business rescue proceedings instituted at time when legal proceedings against company already commenced — Leave to proceed with legal proceedings may be sought during those proceedings themselves — Substantive, separate application not required — Companies Act 71 of 2008, s 133(1)(b). Safari Thatching Lowveld CC v Misty Mountain Trading 2 (Pty) Ltd 2016 (3) SA 209 (GP) Business rescue proceedings –– Resolution taken by company to commence business rescue –– Whether failure to comply with section 129(3) and (4) of the Companies Act 71 of 2008 renders proceedings a nullity –– Resolution to commence business rescue has not been set aside – Standing of business rescue practitioner appointed on strength of resolution – Standing of business rescue practitioner cannot be challenged on ground of non-compliance with procedural requirements – section 129. Newton Global Trading (Pty) Limited (Under Business Rescue) v Da Corte[2015] JOL 34899 (SCA)

Business rescue proceedings-liquidation in terms of section 132 (2) of the Companies Act 71 of 2008 (the Act)-application by creditor forleave to institute liquidation proceedings against the applicant-granted2001 Management Services (Pty) Limited and Another v Anappa (88079/14) [2016] ZAGPPHC 353 (20 May 2016)

Business Rescue-Application to set aside business rescue proceedings – creditors have a direct and substantial interest – non-joinder of creditors is fatal to the relief sought in the application. Golden Dividend 339 (Pty) Ltd and Another v Absa Bank Limited (569/2015) [2016] ZASCA 78 (30 May 2016)

C2 Compromises

D1 COMPANIES ACT AND CLOSE CORPORATIONS IN GENERAL

Company law – Company’s securities register – Access to – Section 26(2) of the Companies Act 71 of 2008 – Interpretation – Section 26(2)conferring an unqualified right of access to the securities register of a company – Person’s motive for access not relevant – Right of access not subject to the provisions of the Promotion of Access to Information Act 2 of 2000. Nova Property Group Holdings Ltd and others v Cobbett and another (MandG Centre for Investigative Journalism NPC as amicus curiae) [2016] 3 All SA 32 (SCA)

Company law – Section 252 – Companies Act 61 of 1973 – Claim for relief – Exception De Sousa and another v Technology Corporate Management (Pty) Ltd and others [2016] JOL 36298 (GJ)

Company law – Company directors – Orders of delinquency in terms of section 162(5)(c) of the Companies Act 71 of 2008 – Directors found to have been guilty of gross abuses of their positions, in circumstances where they owed a fiduciary duty to ensure that company complied with terms of an agreement – Orders of delinquency justified. Gihwala and others v Grancy Property Ltd and others [2016] 2 All SA 649 (SCA)

Companies-Deregistration -Mining and minerals – Companies – interpretation and application of s 56(c) of the Mineral and Petroleum Resources Development Act 28 of 2002 and s 73(6A) of the Companies Act 61 of 1973 – deregistration of a company which is the holder of a mineral prospecting right does not result in that company irretrievably losing that right – subsequent restoration of company’s registration having the legal effect of retrospectively reviving the lapsed prospecting right. Palala Resources (Pty) Ltd v Minister of Mineral Resources And Energy and Others (479/15) [2016] ZASCA 80 (30 May 2016)

Company law –  interpretation of s 26(2) of the Companies Act 71   of 2008  – provides an unqualified right of access to a company’s securities register – person’s motive for access not relevant – right of access not subject to the provisions of the Promotion of Access to Information Act 2 of 2000 (PAIA). Nova Property Group Holdings v Cobbett (20815/2014) [2016] ZASCA 63 (12 May 2016)

Company law – Company directors – Orders of delinquency in terms of section 162(5)(c) of the Companies Act 71 of 2008 – Directors found to have been guilty of gross abuses of their positions, in circumstances where they owed a fiduciary duty to ensure that company complied with terms of an agreement – Orders of delinquency justified. Gihwala and others v Grancy Property Limited and others [2016] JOL 35573 (SCA)

Companies-Civil procedure – Default judgment – Section 424(1) – Companies Act 61 of 1973 – Personal liability of members of close corporation – Acting recklessly in conducting affairs of company – Granting of order under section 424(1) of Companies Act 61 of 1973 by default where no evidence has been adduced – Erroneous within meaning of rule 42(1)(a) – Uniform Rules of Court Minnaar v Van Rooyen NO [2015] JOL 33908 (SCA)

Company law – Members of company – Right to vote at general meeting – Member’s right to vote at a general meeting would ordinarily fall within the category of personal membership rights and not corporate rights. Communicare and others v Khan and another [2015] JOL 33681 (SCA)

Company law – Security register of company – Shareholder not reflected in register – Effect on ownership of shares – Owner (or the registered member) can sell certificated shares and cede the rights attached to them, passing the property in them independently of and prior to the registration of the purchaser. Du Plooy NO and others v De Hollandsche Molen Share Block Ltd and another[2016] 1 All SA 748 (WCC)

Directors-Investment agreement – express and tacit terms – breach – damages – heads of damage – claims not excluded by rule in Foss v Harbottle – declaration of

delinquency in terms of section 162(5)(c) of the Companies Act 71 of 2008 – section applies in cases of substantial misconduct by directors – not retrospective in its operation – section a rational response to the problem of delinquency by directors – not unconstitutional – circumstances justifying the making of a declaration of delinquency. Gihwala v Grancy Property Ltd (20760/2014) [2016] ZASCA 35 (24 March 2016)

Close corporations – Restoration of registration after deregistration – Close Corporations Act 69 of 1984, section 26(7) – Effect of – Retrospectively validates legal proceedings instituted during the period of deregistration, and interrupts prescription CA Focus CC v Village Freezer t/a Ashmel Spar [2016] JOL 33583 (SCA)

Companies Act 2008-Derivative action-section 165(5) of the Companies Act, 2008 Mbethe v United Manganese of Kalahari (Pty) Ltd (42213/2014) [2016] ZAGPJHC 8 (11 February 2016)

Directors and officers — Liability for debts of company — Court cannot make prescribed finding of recklessness or intent to defraud without hearing evidence — Grant by default of order under s 424(1) of Companies Act 61 of 1973 not permitted. Minnaar v Van Rooyen NO 2016 (1) SA 117 (SCA)5

Directors-s 424 of the Companies Act, 61 of 1973- reckless and/or fraudulent conduct in respect of a company’s business Noordman N.O. and Another v Bruin (3635/2013) [2016] ZAFSHC 9 (29 January 2016)

E SECURITIES IN GENERAL

Security-Lease — Huur gaat voor koop rule — When applicable — Inapplicability of rule to 'collateral rights' unconnected with lease — Exclusivity clause in lease agreement integral part of that lease and not collateral right. Masstores (Pty) Ltd v Pick 'N Pay Retailers (Pty) Ltd and another 2016 (2) SA 586 (SCA) 

Security-Mortgage bond — Nature — Not only applying to immovable property — Special notarial bond constituting mortgage bond — Security by Means of Movable Property Act 57 of 1993, s 4; Insolvency Act 24 of 1936, s 2. Land and Agricultural Development Bank of South Africa t/a The Land Bank v Factaprops 1052 CC and another 2016 (2) SA 477 (GP)

Security-Notarial bond — Special notarial bond — Nature — Constituting mortgage bond — Security by Means of Movable Property Act 57 of 1993, s 4; Insolvency Act 24 of 1936, s 2. Land and Agricultural Development Bank of South Africa t/a The Land Bank v Factaprops 1052 CC and another 2016 (2) SA 477 (GP)

Security-Notarial bond — Special notarial bond Extinctive prescription — Period of prescription — Debt secured by special notarial bond — Special notarial bond constituting mortgage bond to which 30-year prescription period applying — Prescription Act 68 of 1969, s 11(a)(i). Land and Agricultural Development Bank of

5 Already discussed December 2015 now reported case

South Africa t/a The Land Bank v Factaprops 1052 CC and another 2016 (2) SA 477 (GP)

Security-Usufructuary - person in charge-consent of usufructuary essential- Land — Unlawful occupation — Eviction — Statutory eviction — Unlawful occupier — Whether holder of bare ownership in context of usufruct could be unlawful occupier — Prevention of Illegal Eviction from and Unlawful Occupation of Land Act October and another NO v Hendricks and another 2016 (2) SA 600 (WCC)

Mortgage bond — Validity — May secure debt arising from enrichment claim. Panamo Properties 103 (Pty) Limited v Land and Agricultural Development Bank of South Africa 2016 (1) SA 202 (SCA)6

CASE NAMES

2001 Management Services (Pty) Limited and Another v Anappa (88079/14) [2016] ZAGPPHC 353 (20 May 2016)

ABSA Bank Limited v Hammerle Group (Pty) Ltd [2016] JOL 33570 (SCA)

ABSA Bank Limited v Naude NO and others [2015] JOL 33323 (SCA)

Absa Bank Ltd v Van Zyl NO and Another (35976/2015) [2016] ZAGPPHC 247 (22 April 2016)

Avantech Ltd v Fryer and Another (70750/14) [2016] ZAGPPHC 49 (5 February 2016)

Burco Civils CC v Stolz and Another (26201/15) [2016] ZAGPPHC 350 (19 May 2016)

Button NO and others v Akbur and others [2016] JOL 34153 (KZD)

CA Focus CC v Village Freezer t/a Ashmel Spar [2016] JOL 33583 (SCA)

Casey and another v FirstRand Bank Ltd [2016] JOL 33584 (SCA)

Cilliers and others v Steenkamp and others [2016] JOL 34781 (WCC)

City of Tshwane Metropolitan Municipality v Mitchell [2016] 2 All SA 1 (SCA)

City of Tshwane Metropolitan Municipality v PJ Mitchell (38/2015) [2016] ZASCA 1 (29 January 2016)

Communicare and others v Khan and another [2015] JOL 33681 (SCA)

Constantia Insurance Company Limited v Master of the High Court, Johannesburg and Others (23968/2015) [2016] ZAGPJHC 121 (13 May 2016)

Cowan v Hathorn NO and others [2016] JOL 33589 (SCA)

6 Already discussed December 2015

De Sousa and another v Technology Corporate Management (Pty) Ltd and others [2016] JOL 36298 (GJ)

Diener NO v Minister of Justice (30123/2015) [2016] GP

Du Plooy NO and others v De Hollandsche Molen Share Block Ltd and another[2016] 1 All SA 748 (WCC)

Engen Petroleum Limited v Plastic Brown Containers (Pty) Ltd (11693/2014) [2016] ZAKZDHC 20 (10 May 2016)

Eravin Construction CC v Bekker NO (20736/2014) [2016] ZASCA 30 (23 March 2016)

Ex Parte Concato and similar cases 2016 (3) SA 549 (WCC) ALSO: [2016] 2 All SA 519 (WCC)

Ex parte Harris (Fairhaven Country Estate (Pty) Ltd as intervening party)[2016] 1 All SA 764 (WCC)

Ex parte: Connoway and Four Others (5873/2016, 6168/2016, 6167/2016, 6166/2016, 6002/2016) [2016] ZAWCHC 62 (24 May 2016)

Gap Merchant Recycling CC v Goal Reach Trading 55 CC 2016 (1) SA 261 (WCC) 

Gihwala and others v Grancy Property Limited and others [2016] JOL 35573 (SCA)

Gihwala and others v Grancy Property Ltd and others [2016] 2 All SA 649 (SCA)Gihwala v Grancy Property Ltd (20760/2014) [2016] ZASCA 35 (24 March 2016)

Golden Dividend 339 (Pty) Ltd and Another v Absa Bank Limited (569/2015) [2016] ZASCA 78 (30 May 2016)

Griessel and another v Lizemore and others [2016] JOL 34038 (GJ)

Griffiths v Janse Van Rensburg and another NNO 2016 (3) SA 389 (SCA)Griffiths v Janse van Rensburg NO and another [2016] 1 All SA 643 (SCA)

Harris v Fairhaven Country Estate (Pty) Limited (9357/2015) [2016] ZAWCHC 4 (26 January 2016)

Hlumisa Investment Holdings (RF) Limited and another v Van der Merwe NO and others [2016] JOL 34326 (GP)

Investec Bank Limited v Le Roux (575/2014) [2016] ZAGPJHC 11 (11 February 2016)

JVJ Logistics (Pty) Ltd v Standard Bank of South Africa Ltd and Others (7076/2015) [2016] ZAKZDHC 24 (22 July 2016)

Kingdom Films and others v Kaplan NO and another [2016] JOL 36001 (GJ)

Knipe and Another v Noordman N.O. and Others (A230/2014) [2016] ZAFSHC 86 (2 June 2016)

Knoop NO and others v Birkenstock Properties (Pty) Ltd and others[2015] JOL 33788 (FB)

Lagoon Beach Hotel (Pty) Ltd v Lehane NO a.o. 2016 (3) SA 143 (SCA) Lagoon Beach Hotel (Pty) Ltd v Lehane NO and others [2016] 1 All SA 660 (SCA)

Land and Agricultural Development Bank of South Africa t/a The Land Bank v Factaprops 1052 CC and another 2016 (2) SA 477 (GP)

Liu v Roering NO and Another (25713/2016) [2016] ZAGPPHC 205 (15 April 2016)

Loots v Nongoma Medical Centre CC and Another (5639/2016) [2016] ZAWCHC 76 (24 June 2016)

Mabote and Others v Van Der Merwe NO and Another (2015/40324) [2016] ZAGPJHC 185 (8 July 2016)

Masilo N.O and Others v Betterbridge (Pty) Limited (37/2015) [2016] ZASCA 73 (25 May 2016)

Masstores (Pty) Ltd v Pick 'N Pay Retailers (Pty) Ltd and another 2016 (2) SA 586 (SCA) 

Mayo NO v De Montlehu  2016 (1) SA 36 (SCA) 7

Mbethe v United Manganese of Kalahari (Pty) Ltd (42213/2014) [2016] ZAGPJHC 8 (11 February 2016)

Minnaar v Van Rooyen NO [2015] JOL 33908 (SCA)

Minnaar v Van Rooyen NO 2016 (1) SA 117 (SCA)8

Naidoo and others v Kalianjee NO and others 2016 (2) SA 451 (SCA)

Nation Unlished Trading CC t/a Engennering Drawing And Design v Bulk Petroleum Supplies (Pty) Ltd (4859/2016) [2016] ZAWCHC 70 (10 June 2016)

Newton Global Trading (Pty) Limited (Under Business Rescue) v Da Corte[2015] JOL 34899 (SCA)

Nova Property Group Holdings Ltd and others v Cobbett and another (MandG Centre for Investigative Journalism NPC as amicus curiae) [2016] 3 All SA 32 (SCA)

Ngwato v Van der Merwe NO (2014/28470) [2016] GJ (6 May 2016)

Noordman N.O. and Another v Bruin (3635/2013) [2016] ZAFSHC 9 (29 January 2016)

Nova Property Group Holdings v Cobbett (20815/2014) [2016] ZASCA 63 (12 May 2016)7 Already discussed in December 2015 but now a reported case8 Already discussed December 2015 now reported case

October and another NO v Hendricks and another 2016 (2) SA 600 (WCC)

Oelofsen NO and Another; In re: Oelofsen NO and Another v Bamboo Rock 1215 CC and Others (8949/16) [2016] ZAGPPHC 245 (21 April 2016)

Osborne v Cockin and Others; Osborne v Cockin N.O. and Others (5618/2015, 6053/2015) [2016] ZAECGHC 19 (12 April 2016)

Palala Resources (Pty) Ltd v Minister of Mineral Resources And Energy and Others (479/15) [2016] ZASCA 80 (30 May 2016)

Panamo Properties 103 (Pty) Limited v Land and Agricultural Development Bank of South Africa 2016 (1) SA 202 (SCA)9

Pinfold and others v Edge to Edge Global Investments Limited [2016] JOL 35152 (KZD)

Pouroullis v Market Pro Investments 106 (Pty) Ltd (South African Bank of Athens Ltd and Absa Bank Ltd (20370/2015) [2016] ZAGPJHC 12 (12 February 2016)

Reddy v ABSA Bank Limited and others [2015] JOL 33305 (SCA)

Roering NO and Another v Mahlangu and Others (581/2015) [2016] ZASCA 79 (30 May 2016)

Safari Thatching Lowveld CC v Misty Mountain Trading 2 (Pty) Ltd 2016 (3) SA 209 (GP) 

Schickerling NO and Another v Chickenland (Pty) Ltd t/a Nando's (22712/2016) [2016] ZAGPPHC 208 (15 April 2016)

Shanmugam v Peter N.O and Others (11638/2015) [2016] ZAKZDHC 16 (20 April 2016)

Shanmugam v Peter NO and others [2016] JOL 36072 (KZD)

Southern Value Consortium v Tresso Trading 102 (Pty) Limited (Klopper NO and another as intervening business rescue practitioners)[2015] JOL 34787 (WCC)

Stalcor (Pty) Ltd v Kritzinger NO and Others (1841/2012) [2016] ZAFSHC 6 (21 January 2016)

Standard Bank of South Africa Limited A-Tteam Trading CC 2016 (1) SA 503 (KZP)

Standard Bank of South Africa Limited v Gas 2 Liquids (Pty) Limited (45543/2012) [2016] GJ (10 March 2016)

Stander v Van den Berg (60296/2013) [2016] ZAGPPHC 7 (21 January 2016)

Swart v Heine (192/15) [2016] ZASCA 16 (14 March 2016)

Swart v Starbuck and Others (20785/2014) [2016] ZASCA 83 (30 May 2016)

9 Already discussed December 2015

Tshwane City v Uniqon Wonings (Pty) Ltd 2016 (2) SA 247 (SCA)

Van Der Merwe and Others v Zonnekus Mansion (Pty) Ltd and Others (4653/2015B) [2016] ZAWCHC 11 (18 February 2016)

Van Zyl N.O and Others v Master of the High Court of South Africa, Western Cape Division, Cape Town and Another (7892/2015) [2016] ZAWCHC 51 (11 May 2016)

Voltex (Pty) Limited trading as Voltex Bramley v Mnguni[2016] JOL 35898 (GJ)

Werksmans Incorporated v Praxley Corporate Solutions (Pty) Limited[2016] JOL 34039 (GJ)

Zwarts v Janse van Rensburg NO and others [2015] JOL 33678 (SCA)

CASES

Reddy v ABSA Bank Limited and others [2015] JOL 33305 (SCA)

Winding up of close corporation during period of de-registration – Winding up of close corporation automatically retrospectively validated upon reinstatement – Section 82(4) – Companies Act 71 of 2008

In August 2011, the first respondent launched an application for the provisional winding up of a close corporation (Missouri). A final winding up order was made on 27 August 2012. The second and third respondents were appointed as the liquidators of Missouri and they commenced with the winding up of its affairs in terms of the Companies Act 71 of 2008 (“the act”). At that stage, the liquidators and the appellant, who was the sole member of Missouri, discovered that Missouri had been deregistered in terms of section 82(3)(a) of the Companies Act 71 of 2008 on 29 July 2011. The appellant consequently launched an application in the high court, for an order declaring that the winding up of Missouri was void and of no force and effect on the ground that when the provisional and final winding up orders and the appointment of the second and third respondents as liquidators were made, Missouri had been de-registered.

The first respondent opposed the application and filed a counter-application for a declarator that the winding up of Missouri was valid in all respects and of full force and effect. The counter-application was in based only on the contention that the reinstatement of Missouri operated retrospectively.

The high court dismissed the application of the appellant and granted the declarator sought by the first respondent.

On appeal, the critical question was whether the reinstatement of Missouri retrospectively validated the corporate activities thereof during the period of its de-registration.

Held that the question was decisively settled in Newlands Surgical Clinic (Pty) Limited v Peninsula Eye Clinic (Pty) Limited [2015] JOL 33001 (SCA), where the court stated that section 82(4) of the act has automatic retrospective effect, not only in revesting the company with its property but also in validating its corporate activities during the period of its de-registration. Upon its reinstatement the winding up of Missouri had therefore been automatically validated retrospectively in all relevant respects.

The appeal was thus dismissed.

Zwarts v Janse van Rensburg NO and others [2015] JOL 33678 (SCA)

Dispositions- Liquidation of pyramid scheme – Consolidation of corporate entities

The respondents (as liquidators) instituted action against the appellant, claiming an order in terms of section 29 of the Insolvency Act 24 of 1936, setting aside payments allegedly made to him by a pyramid scheme as an alleged undue preference.

The only issue which the present Court had to adress in this judgment was that of the identity of the person or entity with whom the appellant had contracted and by whom he was paid the dividends on his investment.

Held that the court below was correct to find that in contracting with the agents representing the scheme, the appellant was contracting with the corporate entities operating its business as from time to time. The debtor that made the disposition was in the circumstances deemed to be the consolidated estate into which each of those entities had been subsumed and the creditor entitled to claim repayment was likewise the consolidated estate in the hands of its liquidators.

The appeal was accordingly dismissed.

Swart v Heine (192/15) [2016] ZASCA 16 (14 March 2016)

Interrogatios-Company law ─ application for rescission of an order enabling enquiry into the affairs of a company in voluntary liquidation in terms of s 417 of the Companies Act 61 of 1973 ─ ex parte application made to enable enquiry met the requirements of s 388 of the Act ─ appeal dismissed with costs.

This appeal turns on whether an ex parte application that served before Ledwaba DJP in chambers in the Gauteng Division of the High Court met the requirements of s 388(1) and (2) of the Companies Act 61 of 1973 (the Act), 1 and whether a proper case had been made for the order sought in terms of the section. Ledwaba DJP, who heard the matter in camera, granted an order for leave to convene an enquiry in terms of s 417 and 418 of the Act in respect of a company under voluntary liquidation. The appellant, a former director of the company, when he discovered that the order had been made, applied for rescission of the judgment on the basis that the order was erroneously sought or granted because there was no reference to the provisions of s 388 of the Act in the notice of motion and founding affidavit. Pretorius J, who heard the application for rescission, held that although the section was not specifically mentioned in the notice of motion and founding affidavit, the relief sought before Ledwaba DJP was contemplated in terms of s 388. She accordingly dismissed the appellant’s application for rescission. This appeal is against that judgment with the leave of that court. [2] The order sought before Ledwaba DJP was that: (a) the matter be heard in camera; (b) leave be granted to the applicants to hold an enquiry into the affairs of the company BSA Group Holdings (Pty) Ltd (in liquidation) (the company); and (c) Mr 1 I shall set out the section in full below. 3 Charles Stewart be appointed to conduct the enquiry under ss 417 and 418 of the Act of 1973 read with s 9 of Schedule 5 of the Companies Act 71 of 2008. [3] A brief background to the matter is as follows. The company, previously registered as Biz Africa 111 (Pty) Ltd, was voluntarily wound-up by special resolution of its directors when it was unable to pay its debts. The appellant is a director of the company together, with Mr Mellet and Mr Stevenson. [4] The first respondent (Charlene Heine), the second respondent (Justin Mark Heine) and the third respondent (Deksny Trading (Pty) Ltd) are creditors of the company. They were also applicants in the ex parte application which the appellant is challenging. Ms Heine is owed the amount of R45 785 in respect of outstanding salaries. Acting on behalf of the company, the appellant signed a settlement agreement acknowledging the company’s indebtedness to Ms Heine. When the company failed to honour the

undertaking, Ms Heine issued summons and obtained judgment against the company. Mr Heine, is owed the sum of R652 643 by the company in respect of which Mr Stevenson signed a settlement agreement on behalf of the company undertaking to pay him. That amount is still outstanding and summons was issued against the company. Deksny Trading is owed $190 042 in respect of a loan it advanced to the company. [5] The respondents’ locus standi as creditors of the company is not disputed.

The gravamen of the appellant’s complaint relates to whether or not the ex parte application that served before Ledwaba DJP met the requirements of s 388(1) and (2) of the Act. An answer to this question is dispositive of the appeal. It is thus not necessary to deal with all the points raised by the appellant’s counsel in his heads of argument as during the hearing in this court, the issues on appeal were narrowed to: (a) whether the ex parte application was defective for lack of specific reference to s 388(1) and (2), in the notice of motion and founding affidavit; and (b) if not whether a proper case was made for the relief sought in the papers.

Section 388 of the Act provides: ‘Court may determine questions in voluntary winding-up (1) Where a company is being wound up voluntarily, the liquidator or any member or creditor or contributory of the company may apply to the Court to determine any question arising in the winding-up or to exercise any of the powers which the Court might exercise if the company were being wound up by the Court. (2) The Court may, if satisfied that the determination of any such question or the exercise of any such power will be just and beneficial, accede wholly or partly to the application on such terms and conditions as it may determine, or make such other order on the application as it thinks fit.’

From the wording of s 388, it is clear that the respondents could bring such an application and that the court could determine any such question arising in the winding-up or to exercise any of the powers which the court might exercise where a company is wound-up by the court. In my view nothing precluded them from approaching the court in terms of this section. In fact, the circumstances of this case clearly warranted an urgent intervention in terms of ss 417 and 418 of the Act. The appellant’s submission that the purpose of the enquiry is to extort, frustrate or squeeze payments from him is ill-conceived.

There is a further disconcerting aspect to this appeal. The issues in this appeal are simple and straightforward and do not involve complicated or complex issues of law. This is a case where leave to appeal should not have been granted at all. Why the court a quo thought this appeal deserves the attention of this court is not explained. This court has repeatedly bemoaned the fact that unworthy appeals are referred to it, with the result that more deserving and meritorious appeals are either delayed or lose their places in the roll. (See Shoprite Checkers Pty Ltd v Bumper 2003 (5) SA 534 (SCA); S v Monyane & others 2008 (1) SACR 543 (SCA).) Leave to appeal should not be granted where there is no reasonable prospect of success on appeal, or no compelling reason why an appeal should be heard ─ s 17(1)(a) of the Superior Courts Act 10 of 2013. [14] Accordingly, the appeal is dismissed with costs including the costs of two counsel.

Eravin Construction CC v Bekker NO (20736/2014) [2016] ZASCA 30 (23 March 2016)

Business rescue-Disposition in terms of s 341(2) of the Companies Act 61 of 1973- recoverable by creditor or whether enforcement precluded by s 154(2) of the Companies Act 71 of 2008 – whether pre-business rescue debt – meaning of ‘debt owed’. 

The Supreme Court of Appeal (SCA) handed down judgment concerning the recoverability of a payment made by a close corporation after the effective date of its winding-up – a void disposition – to a company that was later placed under business rescue. An application for the winding-up of Ditona Construction (Pty) Ltd (Ditona) was brought in the North West Division of the High Court, Mahikeng on 20 October 2010, being the effective date of the winding-up in terms of s 348 of the Companies Act 61 of 1973 (the old Act). A provisional winding-up order was made on 9 December 2010, and a final order was granted on 3 March 2011. However, on 21 October 2010, a day after the effective date, a payment of R389 593.49 was made by Ditona to the appellant, Eravin Construction CC (Eravin). On 24 September 2012, Eravin’s board resolved to place it under business rescue in terms of s 132 of the Companies Act 71 of 2008 (the new Act). Notice to commence business rescue proceedings was filed in the offices of the Companies and Intellectual Property Commission (CIPC) on 26 September 2012, thus beginning the business rescue process. A business rescue practitioner was appointed on 5 October 2012 and a business rescue plan was adopted on 25 January 2013. The business rescue was terminated on 31 May 2013 and a notice was filed that substantial compliance with the business rescue plan had been achieved. Ditona’s liquidators, the respondents in the appeal, having established that the disputed amount had been paid to a firm of attorneys, Grobler, Levin and Soonius Inc, instructed their attorneys to ascertain the basis of the payment. They did so on the premise of s 341(2) of the old Act, which provides that dispositions of property made by a company being wound-up are void unless the court orders otherwise. Eravin’s argument, on the other hand, was that s 154(2) of the new Act precluded the liquidators from recovering the debt. This section provides that a creditor may not recover a prebusiness rescue debt. It had been argued by the liquidators in the court a quo that the entire business rescue proceedings were void and therefore that s 154(2) of the new Act did not bar the recovery of debt. It was argued that this was so because Eravin had not complied with s 129 of the new Act in that the business rescue practitioner had not been appointed within five business days of the filing of the resolution as required by s 129(3)(b) of the new Act. This argument was rejected by the court a quo. It was also argued that the debt was not a pre-business rescue debt owed by Eravin to Ditona as it only became 2 2 due after the commencement of the business rescue proceedings, and was thus recoverable. The court a quo had found that this was indeed so and had granted the liquidators’ application on that basis. On appeal, in respect of the first argument, the SCA held that it had now been settled by the court in Panamo Properties (Pty) Ltd & another v Nel & others NNO [2015] ZASCA 76; 2015 (5) SA 63 (SCA), that non-compliance with s 129 did not vitiate the business rescue proceedings automatically, but that what was required in order to achieve that result was an application to court. In respect of the second argument, the SCA found that s 341(2) of the old Act and s 154(2) of the new Act are both concerned with when debts are owed, rather than when they are claimable (or fall due). The court found on this account that the prescription analogy that had been adopted by the court a quo was misleading for determining when the debt was owed. The SCA held that s 341(2) of the old Act expressly provides that a disposition in the terms

contemplated by it ‘shall be void’; and thus that the recipient has no right, on this account, to retain property so disposed. Consequently, the recipient owes a debt to the body that made the prohibited disposition, and that that debt is owed as soon as the disposition had been received. The SCA further held that s 154(2) of the new Act which provides that if a debt was owed by a company ‘before the beginning of the business rescue process’, ie before the filing of the resolution when a company places itself under business rescue – then the creditor ‘is not entitled to enforce’ that debt. The Court held that in this case, the payment was made on 21 October 2010 and, being void, its repayment was immediately owed by Eravin. Its business rescue proceedings had begun on 26 September 2012, being the date on which the resolution had been filed with the CIPC. As the debt had been owed prior to 26 September 2012, the debt was a pre-business rescue debt and could not be recovered. On the further argument that was raised for the first time on appeal, the SCA held that all creditors – as opposed to only those creditors who had been given notice of the business rescue proceedings, as had been argued by the appellant – are precluded from enforcing pre-business rescue debts. The court held that there was no justification for reading into the section which was not expressly provided for. The appeal thus succeeded and the order of the court below granting the liquidators’ application was set aside and replaced with an order dismissing the application with costs.

Gihwala v Grancy Property Ltd (20760/2014) [2016] ZASCA 35 (24 March 2016)

Directors-Investment agreement – express and tacit terms – breach – damages – heads of damage – claims not excluded by rule in Foss v Harbottle – declaration of delinquency in terms of section 162(5)(c) of the Companies Act 71 of 2008 – section applies in cases of substantial misconduct by directors – not retrospective in its operation – section a rational response to the problem of delinquency by directors – not unconstitutional – circumstances justifying the making of a declaration of delinquency.

The SCA handed down judgment in a commercial dispute between, on the one hand, Mr Dines Gihwala and Mr Lance Manala and Grancy Property Ltd (Grancy). The dispute arose from a BEE transaction in which Spearhead Property Holdings Ltd made available 3.5 million units at a favourable price below the then current market value of the units. A company called Seena Marena Investments (Pty) Ltd (SMI), owned jointly by Mr Gihwala’s family trust and Mr Manala, was given the opportunity to acquire a 40% interest in a company specially established to acquire the BEE units. When a further 18% interest became available they involved a British businessman and friend of theirs, Mr Karim Mawji. The agreement concluded with him led to this dispute. On 3 February 2005 the parties concluded an agreement in terms of which Mr Mawji, through Grancy, would acquire a one-third share in SMI, which would in turn acquire a 58% stake in the company owning the Spearhead units. To that end Grancy provided funding of around R3.5 million. Disputes arose when Mr Gihwala and Mr Manala refused to recognise that Grancy was entitled to a shareholding in SMI or any information about its business or how its money had been invested. This has led to extensive litigation both in the Western Cape Division of the High Court and in the SCA. In the trial the High Court granted judgment in favour of Grancy on a number of monetary claims arising from the breach of the 3 February agreement. It also ordered that books of account be produced and made

available to Grancy and that there be a debatement of account between the parties. Lastly it declared Mr Gihwala and Mr Manala to be delinquent directors, an order that had the effect of precluding both of them from being directors of companies for a period of seven years. The SCA upheld the majority of the monetary claims and a crossappeal in regard to one claim, as well as a cross-appeal that Mr Gihwala’s family trust should be jointly and severally liable with him and Mr Manala for most of those claims. It set aside the judgment in regard to two claims and reduced the amount payable in terms of a third. It also varied the order in regard to the provision of access to books and records of SMI and set aside the order to furnish an account, in part on the basis that this was a matter already being dealt with by the High Court in the Western Cape. A constitutional challenge to section 162(5)(c) of the Companies Act 71 of 2008 was rejected. The SCA held that the disqualification of delinquent directors was a proportionate response by the legislature to the problem of delinquent directors. It upheld the orders of delinquency in relation to both Mr Gihwala and Mr Manala, holding that they had been guilty of gross abuses of their positions as directors of SMI, to which they owed a fiduciary duty to ensure that it complied with the terms of the agreement concluded with Grancy. They had grossly misconducted themselves as directors of SMI and conducted themselves in a fashion that amounted to recklessness. All of this justified the orders declaring them to be delinquent directors.

TSHWANE CITY V UNIQON WONINGS (PTY) LTD 2016 (2) SA 247 (SCA)

Local authority — Rates — Imposition — Township — Rates payable by township owner to be calculated over extent or remaining extent of township as single entity, not on unsold erven separately. — Municipal service charges — Municipal clearance certificate — Rates payable by township owner when erven sold — Determination of — Municipal Systems Act 32 of 2000, s 118(1).

Section 118(1) of the Local Government: Municipal Systems Act 32 of 2000 (the Systems Act) provides that Registrars of Deeds —   'may not register the transfer of property except on production to that registrar of deeds of a prescribed certificate . . . which certifies that all amounts that became due in connection with that property for . . . property rates and other municipal taxes, levies and duties during the two years preceding the date of application for the certificate have been fully paid'. This case concerns the City's refusal to issue the respondent, a developer, with s 118(1) clearance certificates in respect of three erven it had sold in a township development. This was on the basis that the developer, as owner thereof, first had to pay the arrear rates in respect of each separately rated erf comprising the township. At issue was how to determine what was owed in connection with an erf that had until its sale been rated as part of a township.HeldThe basis upon on which townships were rated was on the value of the whole or the remaining extent thereof. Erven were rated individually only after they were sold by the township owner and transferred to purchasers. The City was accordingly not entitled to levy rates in respect of individual erven that had not yet been sold. A township owner was not obliged to pay all amounts due in respect of the entire township when applying for a clearance certificate in respect of an erf sold and to be transferred. '(A)mounts that became due in connection with that property' in s 118(1)

of the Systems Act referred to the property to be transferred. The correct interpretation of s 118(1), on its clear wording, was that a clearance certificate must be applied for in connection with the property that the owner wished to transfer, and that the local authority must certify that all amounts that became due in connection with that property had been fully paid. The practical and equitable way to determine rates for an erf before transfer was to allocate a pro rata share of the rates due in respect of the township as a whole, to such an erf, and for the township owner to make payment of that amount in order to comply with the requirements for obtaining a clearance certificate. In regard to municipal charges, unless they were capable of allocation to specific erven, they should be apportioned in the same way.

Griffiths v Janse van Rensburg NO and another [2016] 1 All SA 643 (SCA)

Dispositions- Setting aside of dispositions in terms of section 29 of the Insolvency Act 24 of 1936 – Whether impugned dispositions were made in the ordinary course of business – Test is whether ordinary, solvent, businesspeople would, in similar circumstances, themselves act as did the parties to the transaction – Dispositions made pursuant to void agreement not satisfying test and fell to be set aside.

Interest – Mora interest – Payment of mora interest on an award setting aside such disposition under section 32(3) of the Insolvency Act 24 of 1936 – Concept of mora relates to the time at which an obligation is due – Debt arises only on judgment and no amount due before judgment, on which mora interest can run.

The appellant received four payments from a trust pursuant to two agreements to “invest” in the trust. The trust was the vehicle through which a pyramid scheme was operated. When the scheme collapsed, the trust was sequestrated. The respondents were the trustees in the insolvent trust. They brought an action in terms of section 29 of the Insolvency Act 24 of 1936, to set aside the four payments made to the appellant, alleging that the appellant was a creditor of the trust and that the dispositions in question should be set aside. The appellant argued that he was a creditor based on an enrichment cause of action against the trust for repayment of capital monies paid to the trust by the appellant in terms of an illegal and void agreement. He went on to plead that the trust had a legal obligation to repay the amounts because the agreements were void and illegal and that the obligation to repay arose when the appellant made the investment payments. Of the four payments, it emerged that two were of capital and two of interest. Although the effect of the plea was that all four of the impugned dispositions were made in the ordinary course of business, it was conceded on appeal that that was not true of two of the amounts which represented interest. The appellant, accordingly, acceded to an order setting those aside. What remained in issue was whether the appellant proved that the two dispositions of capital were made in the ordinary course of business and should thus avoid the same fate.

The High Court found that neither the dispositions nor the interest payments had been made in the ordinary course of business. All four payments were set aside, and the appellant was ordered to repay the relevant amounts. The present appeal was noted against that decision.

Held – In considering what is meant by the phrase “the ordinary course of business”, the test to be applied is an objective one. The question is whether ordinary, solvent, businesspeople would, in similar circumstances, themselves act as did the parties to the transaction. Consideration should not be given to any intention to prefer or to the fact that the party making the disposition was insolvent at the time since these are considered separately under other parts of the section. The question to be answered is whether the transaction is one with conventional terms which ordinary businesspeople would normally have concluded under the given circumstances. The court below, accordingly, erred by focusing on the general nature of the business conducted by the trust, and failed to fully analyse and to give due weight to the relationship between the appellant and the trust.

The focus must be on the dispositions themselves. The appellant had been unaware that the investment agreements were void when he demanded the payments and was therefore unaware that he had a valid claim under the condictio ob turpem vel iniustam causam. Where payments are made pursuant to void agreements, a claim for repayment would ordinarily lie under the condictio, which is one of the enrichment actions. He, accordingly, did not invoke the condictio as the basis for demanding the payments. The demands were made, and acceded to, for payment of the agreed amounts under the void investment agreements. The transactions arising from the business relationship between the appellant and the trust at the time arose from the void agreements, not from the condictio.

Applying the broad, objective test to the facts of this matter, the repayments of the capital amounts did not take place in the ordinary course of business. Therefore, not only the dispositions relating to interest, but also those relating to capital, were correctly set aside. The appeal was dismissed.

In a cross-appeal, the trustees submitted that the order of the court below ought to be varied to allow for the payment of mora interest on the judgment debt, from date of service of summons to date of payment. They submitted that the court below erred in ordering interest to run only from the date of judgment. The submission was based on section 32(3) of the Act which provides that a court which sets aside a disposition shall declare the trustee entitled to recover any property alienated under the said disposition or in default of such property the value thereof. The trustees contended that property had to include money, and that the payment of mora interest is ordered so as to compensate a creditor for the loss suffered by not receiving payment on the due date. The concept of mora relates to the time at which an obligation is due. Where a contract does not fix a time and, after a reasonable time has elapsed, one party demands payment, the demand places the debtor in mora. The debtor is not in mora until the payment is due. For unliquidated debts, the common law has been varied by section 2A of the Prescribed Rate of Interest Act 55 of 1975 so that interest runs from the date of demand, subject to a court’s discretion. Unable to uphold the trustees’ contentions on appeal, the Court dismissed the cross-appeal.

Lagoon Beach Hotel (Pty) Ltd v Lehane NO and others [2016] 1 All SA 660 (SCA)

Cross-border insolvency – Recognition of foreign trustee – While a foreign trustee seeking recognition in South Africa must ordinarily establish that the insolvent party

was domiciled within the jurisdiction of the foreign court that appointed him, that is not an inflexible rule, and in exceptional circumstances the requirement of domicile will not be insisted upon.

An Irish businessman (“Dunne”) residing in the United States of America held an interest in the appellant company operating as a hotel and conference centre. In 2013, Dunne was declared bankrupt in the US and Ireland. Pursuant to the order of bankruptcy issued in Ireland, the first respondent (“Lehane”) was appointed as “the Official Assignee in Bankruptcy of Dunne’s estate”. During his investigations, he learned of two contracts in terms of which Dunne had transferred the appellant hotel to his wife. Lehane’s investigations led him to believe that Dunne had been insolvent both at the time he concluded the agreements and made the dispositions. It was contended that the agreements were not genuine, and were intended to frustrate Dunne’s creditors.

Lehane therefore applied in Ireland for the setting aside of the disposition, and for the recovery of the hotel as an asset in Dunne’s bankrupt estate. He then applied to the Western Cape High Court and obtained an order recognising him as the Official Assignee and interdicting the proposed sale of the hotel to a third party pending the outcome of his claim in Ireland. The application having been successful, the present appeal ensued.

Held – The first point for the Court to consider was the appellant’s objection that the court a quo took into account evidence that it alleged was hearsay in nature or which conflicted with the rule that, generally speaking, the fact that a person may have been convicted in criminal proceedings is not admissible in subsequent civil proceedings as proof of his guilt. Essentially, under the rule, a previous conviction amounts to no more than an opinion which has been expressed in regard to certain facts, and does not determine them. It was argued by the appellant that the court a quo, in having regard to the various allegations and documents, that amounted to hearsay, impermissibly elected to allow this into evidence on the basis of the interests of justice without having due regard to the law as to their admissibility, to the prejudice of the appellant who had to answer to largely incomplete and unsubstantiated allegations. In this matter, the Court found that it was understandable that Lehane would have to rely on hearsay evidence. The Court held that a practical and common sense approach is required in cases of this nature. It was critical that the appellant had admitted much of the hearsay and had not sought to challenge additional matter. The relevant evidence could therefore be taken into account.

Turning to the recognition order granted by the court a quo, the present Court addressed the question of Dunne’s domicile. A foreign representative such as a trustee (or in this case, the Official Assignee), who seeks to deal with assets present in this country, must first obtain the active assistance of a South African court by obtaining recognition of the foreign order. Without such recognition, he or she will be precluded from exercising authority and power, for example to convene a statutory meeting in order to interrogate the respondent. Ordinarily, a foreign trustee seeking recognition in South Africa must establish that the insolvent party was domiciled within the jurisdiction of the foreign court that appointed him. However, that is not a law set in stone. It has been accepted that in exceptional circumstances the

requirement of domicile will not be insisted upon. The Court found exceptional circumstances to be present that justified a South African court rendering assistance by taking the necessary steps to recognise the Irish Official Assignee in order to protect the interests of Dunne’s creditors.

There was, therefore, no reason to interfere with the court a quo’s recognition of Lehane. It had the discretion to exercise whether or not to do so, and such discretion was properly exercised.

Other than for two limited issues in respect of which the court order needed to be varied, the appeal was unsuccessful.

Du Plooy NO and others v De Hollandsche Molen Share Block Ltd and another[2016] 1 All SA 748 (WCC)

Company law – Security register of company – Shareholder not reflected in register – Effect on ownership of shares – Owner (or the registered member) can sell certificated shares and cede the rights attached to them, passing the property in them independently of and prior to the registration of the purchaser.

The first and second applicants sought an order that a trust, which was the majority shareholder of first respondent, be entered by the first respondent in the first respondent’s security register as the owner of all the shares referred to as class B-F shares. In the alternative, the applicants sought an order that the trust was entitled to exercise voting rights in respect of the shares at any meeting of the shareholders of the first respondent. The need for the application arose from the first respondent having taken the stance that, as the trust was not reflected in the share register as a shareholder, it would not be permitted to be present and vote at any shareholders meeting.

Held – The question which arose was whether ownership of shares is dependent upon registration thereof in a company’s share register. The Court cited authority for the fact that the owner (or the registered member) can sell certificated shares and cede the rights attached to them, passing the property in them independently of and prior to the registration of the purchaser.

On the available evidence, it was difficult to hold that the shares were not transferred to the trust. All of the B, D, E and F class shares were transferred to the trust in July 2004. The Court concluded that the applicants had succeeded in proving their entitlement to the court’s exercising a discretion in terms of section 161 of the Companies Act 71 of 2008 to clarify the position and thereby ensure that the securities register reflects the trust as the holder of the class B–F shares.

Ex parte Harris (Fairhaven Country Estate (Pty) Ltd as intervening party)[2016] 1 All SA 764 (WCC)

Rehabilitation – Application to intervene – Such application not a prerequisite to a party being heard in opposition to an application for rehabilitation – Abuse of court’s process – Court dismissed application were such is without merit, not bona fide and an abuse of the process of the court.

Insolvency – Application for rehabilitation – Test – Insolvency Act 24 of 1936 – Section 124 of the Insolvency Act provides for an application for rehabilitation which may be brought within various stipulated time-frames varying between three and five years depending on the circumstances – In casu, that four-year period had lapsed and, under section 124(2)(a), the requisite twelve-month period after the confirmation by the Master of the first trustees’ account in the estate had also lapsed – Applicant satisfied the Court that he was a fit and proper person to be permitted to trade with the public on the same basis as any other honest business person.

His estate having been sequestrated in 2010, the applicant, in 2015, gave notice in the Government Gazette of his intention to apply for his rehabilitation. In that regard, the statutory requirements of the Insolvency Act 24 of 1936 insofar as notice and time limits were concerned were complied with. The application for rehabilitation was brought pursuant to the provisions of section 124(2) of the Act in light of the fact that at the time that the application was launched more than 12 months had elapsed after the date of the confirmation of the liquidation and distribution account. Sometime thereafter, the intervening party (“Fairhaven”) gave notice that it intended making application for leave to intervene in the rehabilitation application for purposes of procuring the dismissal of such application, alternatively for the postponement of the rehabilitation application pending the completion of an envisaged enquiry in terms of section 152(2) of the Act.

Held – An application for leave to intervene is not a prerequisite to a party being heard in opposition to an application for rehabilitation.

In terms of section 127A of the Act an insolvent is entitled to rehabilitation through effluxion of time after the lapse of a period of 10 years. In such circumstances, no application to court is required. Section 124 of the Act, on the other hand, provides for an application for rehabilitation which may be brought within various stipulated time-frames varying between three and five years depending on the circumstances. Of importance for an application under section 124(2) is that a period of four years must have lapsed post sequestration, “except upon the recommendation of the Master”. In the present case that four-year period had lapsed and, under section 124(2)(a), the requisite twelve-month period after the confirmation by the Master of the first trustees’ account in the estate had also lapsed. In the circumstances, the applicant had brought himself within the parameters of the Act, as far as the lapsing of time was concerned.

The applicant’s reason for seeking rehabilitation was to become commercially active in order to provide for himself and his wife in their old age.

Fairhaven’s seeking an enquiry in terms of section 152(2) was found to have an ulterior and impermissible purpose. The intention was to exert pressure on the applicant to achieve an improper end. The court has a duty to prevent such abuse. The Court expressed its condemnation of the campaign of coercion against the applicant. Fairhaven’s application to intervene in the rehabilitation application was without merit, not bona fide and an abuse of the process of the court, and was dismissed.

In the application for rehabilitation, the applicant had to satisfy the Court that he was a fit and proper person to be permitted to trade with the public on the same basis as any other honest business person. Finding the test to be satisfied, the Court granted the application for rehabilitation.

Diener NO v Minister of Justice (30123/2015) [2016] GP

Liquidation costs-business rescue is superseded by a liquidation order- remuneration of the business rescue practitioner -paid from the free residue after the costs of sequestration set out in section 97 have been paid and cannot be paid from the proceeds of the secured asset.

Prior to the appointment of the business rescue practitioner (BRP), but after the business rescue proceedings commenced, the existing management of the close corporation instructed attorneys to urgently approach the court to obtain an order staying the sale in execution of an immovable property belonging to the close corporation ("the urgent application”). The sale in execution was held at the instance of First Rand Bank Limited in whose favour a mortgage bond was registered. The court granted the order but did not make any pronouncements as to the issue of costs.

Approximately two months after the business rescue proceedings commenced, the BRP determined that the close corporation could not be rescued and approached new attorneys to launch an application in terms of section 141(2)(a) of the Companies Act 71 2008 ("the New Companies Act") to terminate the business rescue proceedings and to place the close corporation under liquidation ("liquidation application"). The court ordered that the business rescue proceedings be terminated and that costs of the application be costs in the liquidation of the close corporation.

The relief the BRP seeks is that his claim for his remuneration and the expenses incurred in the employment of the attorneys be paid before any dividend is awarded to the secured creditor First National Bank. First National Bank has a direct and substantial interest in the outcome of the application and ought to be joined as a respondent in the proceedings. Because of the view that the costs cannot be paid before the claim of First National Bank the issue of joinder is of no consequence.

Section 66(1A) of the Close Corporations Act 69 of 1984 makes the provisions relating to business rescue proceedings in the new Companies Act applicable to close corporations and section 66(2) renders the provisions of the Insolvency Act applicable to close corporations.

Section 135(4) provides that if business rescue proceedings are superseded by a liquidation order, the preference conferred in terms of section 135 will remain in force, except to the extent of any claims arising out of the costs of liquidation. Henochsberg on the new Companies Act, 2008 at page 478(22) is of the view that this preference is retained if business rescue proceedings are superseded by a winding up order, but ranks behind the costs of liquidation.

The remuneration and expenses of the BRP are not payable from the proceeds of a secured asset in terms of section 89(1) of the Insolvency Act or as cost of liquidation in terms of section 97 of the Act.

Section 135(4) of the New Companies Act must be read with section 97 of the Insolvency Act. That being the case, the remuneration of the BRP and the expenses incurred during business rescue proceedings, to the extent that it has not been paid during business proceedings and during liquidation, can only be paid after the costs set out in section 97 have been paid. (Par [60])

The court did not express a clear view on the question whether the cost of the liquidation application was payable from the free residue. The free residue account reflects that the attorney's claim for the liquidation application should be paid from this account. The liquidator’s account was not set aside by the court and it is submitted that it is correct to reflect the cost of the liquidation application as payable from the free residue account. In terms of section 97(3) the taxed costs of sequestration as defined in subsection (4) – “costs as taxed by the registrar of the court incurred in connection with the petition of ... a creditor for the sequestration of the debtor's estate” - is payable from the free residue as costs of sequestration before any creditors are paid. Section 342 of the old Companies Act 61 of 1973 provides that in every winding-up of a company the assets shall be applied in payment of the costs, charges and expenses incurred in the winding-up as nearly as possible as they would be applied in payment of the costs of sequestration under the law relating to insolvency. When the court ordered that the business rescue proceedings be terminated it ordered that the costs of the application be costs in the liquidation of the close corporation.

The Standard Bank of South Africa Limited v Gas 2 Liquids (Pty) Limited(45543/2012) [2016] GJ (10 March 2016)

Business rescue-liquidation proceedings are suspended in terms of section 131(6) of the Companies Act 71 of 2008, there must be-service of an application for business rescue in terms of section 131 of the Companies Act 71 of 2008 on the company (provisional liquidator if appointed) and on the Companies and Intellectual Property Commission; and notification of each affected person in the prescribed manner.

Section 131 (6) of the Companies Act provides that if liquidation proceedings have already been commenced by or against the company at the time an application is made to court for business rescue in terms of subsection (1), the application will suspend those proceedings until the court has adjudicated upon the business rescue application or the proceedings end.

Respondent relies upon the provisions of section 131 (6) to argue that the mere issue out of court of the notice of motion in the business rescue application constitutes that which is required in terms of section 131 (6) and accordingly these liquidation proceedings are immediately suspended. Applicant argues that, for such application to have been properly 'made', service has to have been effected upon both the company and the Commission and all reasonable steps have been taken to identify affected persons and their addresses and to deliver the application to them. (Par [11])

Blue Star Holdings (Pty) Ltd v West Coast Oyster Growers CC 2013 (6) SA 540 WCC found that the operative phrase for consideration in section 131 (6) was "at the time an application is made" and that the word 'made' must be given its ordinary meaning in the context in which it appears in the statutory setting - "the lodging of the [business rescue] application with the registrar for the issue thereof constituted the 'making' the application and the commencement of proceedings to place the company under business rescue (as opposed to the commencement of business rescue per se)" (at para 29). (Par [13]) However, in Blue Star supra no application for provisional liquidation had been heard, no provisional order granted and no provisional liquidator appointed, which the court regarded as an important distinction from the matter before the court. (Par [14])

In Taboo Trading 232 (Pty) Ltd v Pro Wreck Scrap Metal CC and Others 2013 ( 6) SA 141 KZP the question was directly on point - when can an application be said to have been made for purposes of section 131(6) of the Act. The court had regard to the decisions in Investec Bank Ltd v Bruyns 2012 (5) SA 430 WCC and Engen Petrolium Limited v Multi Waste (Pty) Ltd and others 2012 (5) SA 596 GSJ. The court held that a business-rescue application is only to be regarded as having been made once the application has been lodged with the registrar, has been duly issued, a copy thereof served on the Commission and each affected person has been properly notified of the application. The court based its finding on the consequences which ensue upon commencement of liquidation proceedings which is when the winding-up is deemed to commence, the significant consequences of suspension of liquidation proceedings, and the need for reasonable notification to be given to affected persons which were held to be substantive requirements. (Par [15])

Where there is no service upon the provisional liquidator of the application for business rescue, the provisional liquidator may have absolutely no knowledge of that business rescue application. In fact, knowledge alone would be insufficient. The provisional liquidator is entitled to service in terms of section 131 of the Act. Absent such service, the provisional liquidator does not officially know that he or she is 'suspended' in his or her duties and powers if such suspension of the liquidation proceedings were to eventuate solely by reason of lodgement of papers at court and issue of a case number. (Par [23])

It cannot be that mere lodgement of papers and issue of a case number is sufficient to trigger a suspension of liquidation proceedings. If that were the case, a provisional liquidator may be acting without authority (and perhaps unlawfully) in a multiplicity of respects. That cannot have been the intention of the legislature. The question would then also arise as to when and where and why and by whom these unauthorised actions of a provisional liquidator are to be undone and with what consequences to third parties or to the company whose liquidation is suspended but which is not yet (and may never be) in business rescue. (Par [25])

In line with the decisions in Summer Lodge and Taboo Trading the court decided that there must be service and notification as required in terms of section 131 of the Act before it can be said that the business rescue application has been 'made' and that the liquidation proceedings have been suspended.

CA Focus CC v Village Freezer t/a Ashmel Spar [2016] JOL 33583 (SCA)

Close corporations – Restoration of registration after deregistration – Close Corporations Act 69 of 1984, section 26(7) – Effect of – Retrospectively validates legal proceedings instituted during the period of deregistration, and interrupts prescription –

Statutes and interpretation – Statutory interpretation is an objective process by which the words of the statute are given a meaning by having regard to their language, the context in which they are used and the purpose to which they are directed – Subjective views of the parties, their state of mind, or the facts of a particular case have no bearing on such analysis –

A de-registered close corporation (“CC”) may, in terms of the Close Corporations Act 69 of 1984, have its registration restored. In terms of section 26(7), the CC shall then be deemed to have continued in existence as from the date of registration as if it had not been de-registered.

The present appeal addressed the question of whether section 26(7) has the effect of retrospectively validating an invalid summons issued by a CC after de-registration so as to interrupt the running of prescription.

The appellant CC had a claim against the respondent for payment in respect of services rendered. The debt became due and payable in September 2006 and the CC was de-registered in November 2007. Four months after its de-registration, the CC issued summons against the respondent. If the summons did not interrupt prescription, the debt would have prescribed at the end of September 2009. The appellant applied for re-registration to the registrar of close corporations, who restored the appellant’s registration on 11 March 2011.

Because the appellant had not been registered when it commenced litigation, the summons was a nullity and had no legal effect. In its special plea, the respondent therefore pleaded that since the debt was due in September 2006 and that the issue of summons in March 2008 had had no legal effect, the summons did not interrupt prescription. So the claim became prescribed in September 2009. The special plea was dismissed by the magistrate but the high court upheld the respondent’s appeal.

On appeal, the appellant submitted that the language of the deeming provision in section 26(7) is unambiguous, which means that there is no room to interpret it so as not to affect the existing rights of third parties, as the high court had found. The provision therefore had to be given a literal meaning.

Held that the respondent’s contention was that the consequence of re-registration was to restore assets and liabilities so that the entity could continue as before, but it did not validate acts performed after de-registration.

In interpreting section 26(7), the Court stated that statutory interpretation is an objective process by which the words of the statute are given a meaning by having regard to their language, the context in which they are used and the purpose to which they are directed. The subjective views of the parties, their state of mind, or the facts of a particular case have no bearing on this analysis. The Court agreed with

the appellant that in the absence of any ambiguity, there is no room to give the provision a meaning that does not accord with its plain language.

Casey and another v FirstRand Bank Ltd [2016] JOL 33584 (SCA)

Interest – In duplum rule – Where interest is capitalised and interest is charged on interest, capitalised interest does not lose its character as interest and does not become part of the capital amount for the purposes of the in duplum rule –

The first appellant was a customer of the Bank of America. He arranged with his bank for a standby letter of credit to be issued as security for a loan facility sought by the second appellant from the respondent. The standby letter of credit was payable by the Bank of America upon demand by the respondent. When the second appellant defaulted on repayment, the respondent demanded payment from the Bank of America, which paid the amount claimed as per the letter of credit and then debited the first appellant account with that amount. The appellants contended that the respondent was not entitled to claim payment on the letter of credit as its claim against the second appellant had prescribed, and the amount of interest claimed by the respondent on the capital advanced to the second appellant was in excess of that permitted in terms of the in duplum rule. They approached the high court for an order declaring that a debt owed by the second appellant to the respondent which was secured by a standby letter of credit, issued by Casey’s bankers, the Bank of America, had prescribed. However, the court a quo dismissed the application.

Leave to appeal to the present Court was granted.

Held that the appellants’ argument regarding the letter of credit was that it sought to equate the legal standing of a letter of credit with a suretyship. A letter of credit is wholly independent of the underlying contract between the customer of the bank and the beneficiary. It establishes a contractual obligation on the part of the issuing bank to pay the beneficiary in accordance with its terms. An irrevocable letter of credit is not accessory to the underlying contract and is distinguishable in law from a suretyship which is accessory to the principal obligation. It was therefore irrelevant whether the respondent’s claim had prescribed because when the respondent demanded payment, the validity of the letter of credit was beyond dispute.

The appellants achieved partial success on appeal, solely in respect of the point regarding interest. The majority held that where interest is capitalised and interest is charged on interest, capitalised interest does not lose its character as interest and does not become part of the capital amount for the purposes of the in duplum rule. The respondent conceded that it should not have claimed more than the capital amount.

Cowan v Hathorn NO and others [2016] JOL 33589 (SCA)

[NOTE: This case is in JOL February 2016, but judgment was given 25 November 2013]

Litigation by liquidators of company – Section 32(1) of the Insolvency Act 24 of 1936 – A creditor may take proceedings in terms of section 32(1)(b) only if the trustee has failed to do so, and only upon the creditor indemnifying the trustee against all the costs of the proceedings – Effect of indemnity being furnished after institution of

proceedings instead of before – Object of section fulfilled in circumstances of present case

In terms of rule 30 of the Uniform Rules of Court, the appellant had sought the setting aside of an action instituted against him by the first and third respondents in terms of section (1)(b) of the Insolvency Act 24 of 1936. The first and third respondents were the liquidators of a company. The main relief sought against the appellant were orders in terms of sections 26, 29, 30 and 31 of the Insolvency Act read with sections 339 and 340 of the Companies Act 61 of 1973 and Schedule 9 of the Companies Act 71 of 2008, setting aside certain notarial general covering bonds registered by the appellant in his favour, over the movable property of the company in liquidation. It was alleged that the passing of the bonds constituted prohibited dispositions by the company in liquidation of its property within the meaning of the applicable sections in the Insolvency Act.

The dismissal of appellant’s application resulted in the present appeal. The appellant contended that the liquidators had failed to take any proceedings to set aside the notarial bonds in question and that a creditor of the company in liquidation therefore wished to institute proceedings against the appellant in terms of section 32(1)(b) of the Insolvency Act to achieve that objective. The basis upon which the appellant sought to set the summons aside in terms of rule 30 was that the failure by Olampa to furnish the liquidators with an indemnity against all costs to be incurred in the action in terms of section 32(1)(b) of the Insolvency Act, before the action was instituted, had the result that the summons was invalid, or a nullity. The issue of the summons was accordingly contended to be an irregular step in terms of rule 30. The court below held that the purpose of section 32(1)(b) was satisfied by the provision of an indemnity after the institution of the proceedings, because the liquidators and general body of creditors had not been prejudiced. The present appeal was against the conclusion that the purpose of the section was to protect the liquidators and general body of creditors against any adverse order of costs in the litigation had been achieved.

Held that the question on appeal was whether the court below was correct in dismissing the appellant’s application to declare the issue of the summons an irregular step in terms of rule 30.

Resolution of the issue required a consideration of section 32(1)(a) and (b) of the Insolvency Act. In terms thereof, a creditor may take proceedings in terms of section 32(1)(b) only if the trustee has failed to do so. In addition, the creditor may take those proceedings upon the creditor indemnifying the trustee against all the costs of the proceedings. The plain meaning of the section is that the furnishing of the indemnity must occur at the time of the institution of the proceedings by the creditor. The object of section 32(1)(b) is that an indemnity has to be furnished to ensure that the liquidators will not be liable for any adverse costs order which the creditors may incur while litigating in the name of the liquidators at a time when the proceedings have effectively become those of the creditors and the liquidators no longer have any control over the way in which they are conducted or on the expenditure involved. The section is aimed at preventing the assets of the company in liquidation being dissipated in litigation.

The Court found that in casu, section 32(1)(b) had in substance been complied with.

The appeal was dismissed with costs.

Hlumisa Investment Holdings (RF) Limited and another v Van der Merwe NO and others [2016] JOL 34326 (GP)

Business rescue plan – Failure to consult with shareholders – Interim interdict

The Court provided reasons for its order in this matter.

The applicants had approached the Court for the postponement or interdicting of a scheduled meeting pending delivery of certain documents and information, and the outcome of an application for the setting aside of business rescue proceedings and the placing of the third respondent under final liquidation. Although they were shareholders in the third respondent, the applicants alleged that they were not consulted before preparation of the business plan. The first and second respondents, as the business rescue practitioners opposed the application on the grounds, inter alia, of non-joinder, non-compliance with section 133(a) or (b) of the Companies Act 71 of 2008, and that a case for an interdict had not been established.

Held that rule 6(12) of the Uniform Rules of Court requires applicants to state the grounds on which urgency is based and why they contend that they would not be afforded substantial redress in due course.

The Court held that the joinder of the identified parties was not necessary, thereby dispensing with the first point.

Section 133 places a general moratorium on legal proceedings against a company during business rescue proceedings. Consent of the business rescue practitioner is needed. The Court found that the fact that the applicants were not consulted on the business rescue plan, and had no voting rights at a meeting to determine the future of the company meant that they stood to be prejudiced. An interim interdict was thus granted.

Pinfold and others v Edge to Edge Global Investments Limited [2016] JOL 35152 (KZD)

Winding-up application by shareholders – Fraudulent conduct by company directors – Section 81(1)(e), Companies Act 71 of 2008

As shareholders in the respondent, the applicants claimed that R60 million to R70 million had been invested in the respondent on the strength of representations that were made to them. Investigations by the shareholders led them to believe that the directors had either misapplied or wasted the money belonging to the company. Most importantly the applicants contended, which was not disputed, that the respondent had failed to issue financial statements in respect of the years ending February 2012 and February 2013.

In terms of section 81(1)(e) of the Companies Act 71 of 2008, the applicants sought leave for the winding up of the respondent. Having granted the order sought, the Court furnished its reasons.

Held that section 81(1)(e) provides for the winding up of a solvent company if a shareholder has applied, with leave of the Court, for an order to wind up the company on the grounds that the directors of the company are acting in a manner that is fraudulent or otherwise illegal, or the company’s assets are being misapplied or wasted.

Fraud is defined in our common law as: “unlawfully making, with the intent to defraud, a misrepresentation which causes actual prejudice or which is potentially prejudicial to another”.

The discretion to be exercised in terms of section 81 is a very broad discretion and the onus of satisfying the court that the directors acted fraudulently or illegally is an evidential onus that requires an applicant to place sufficient evidence before a court that the grounds exist.

Considering all the allegations and the responses of the directors, the Court was satisfied that in a number of instances misrepresentations were made and that there is a real likelihood that the investors relied on these misrepresentations when they invested. It being likely that the misrepresentations could have caused prejudice to those acting upon it, the Court found that the applicants had shown that they were entitled to an order in terms of section 81(1)(e).

STANDARD BANK OF SOUTH AFRICA v A-TEAM TRADING CC 2016 (1) SA 503 (KZP)

Business rescue — Liquidation proceedings already initiated — Scope of suspensive provision — Whether encompassing application for provisional liquidation — Conflicting views on issue highlighted — Court finding that application for business rescue suspending application for liquidation — Companies Act 71 of 2008, s 131(6).Section 131(6) of the Companies Act 71 of 2008 provides that '(i)f liquidation proceedings have already been commenced by or against the company at the time an application [for an order commencing business rescue proceedings] is made…, the application will suspend those liquidation proceedings until the court has (a) adjudicated upon the application; or (b) the business rescue proceedings end, if the court makes the order applied for'.Before Standard Bank's present application for the provisional liquidation of A-Team could be heard, an application for an order placing it under business rescue was brought in a neighbouring division. A-Team argued that the business rescue application had the effect of suspending the liquidation application, thus barring the present court from granting it, while Standard Bank argued that it was not the liquidation application that was suspended by s 131(6), but the process that would follow upon its granting. This interpretation would, argued Standard Bank, serve to deprive those who ran the company of control of the business until the company was placed under supervision or the winding-up commenced. There were conflicting High Court decisions on the issue.HeldSection 131(6) had to be interpreted in the light of the purpose of business rescue, which was to avoid, where possible, the liquidation of the company (paras [4] – [5]). A distinction had to be made between the proceedings leading up to a winding-up order and the winding-up process itself (para [10]). Liquidation proceedings, like eviction proceedings, were commenced by the launching of an application. That the proceedings would come to an end if the application were dismissed did not mean that the application did not constitute liquidation proceedings (para [12]). Moreover, the notion that a business rescue application should not suspend an application for the winding-up of a company because the activities of those who ran it ought to be curbed, was not consonant with the purpose of business rescue (para [14]). Since the winding-up was suspended, the liquidator would also be prevented from running

the company, and this hiatus would continue until the court adjudicated on the business rescue application, by which time there might be no basis for a rescue plan (para [16]). The interpretation suggested by Standard Bank was neither sensible nor supported by the wording of s 131(6) (para [16]). Hence the business rescue application suspended the application for the liquidation of A-Team (para [21]). So ordered.

Avantech Ltd v Fryer and Another (70750/14) [2016] ZAGPPHC 49 (5 February 2016)

Sequestration application- employee misappropriated money-unliquidated claim-Badenhorst rule applied10

AVANTECH LIMITED (Applicant) is part of a group of Companies owned by Zambian Cuturi family, registered and conducting its business in the Republic of Zambia. Mr Carlo Cuturi, the deponent in both Applicant's founding and replying affidavit, is one of its Directors.

1st and 2nd Respondents, both of whom South African citizens, are married to each other out of community of property. It appears from the papers filed of record that the order sought in this application is in respect of 1st Respondent only. It is undisputed that 1st Respondent is the owner of two immovable properties situated within this court's area of jurisdiction.

Applicant seeks an order for the compulsory sequestration of 1st Respondent's estate in terms of the provisions of the Insolvency Act 24 of 1936 on the basis that 1st Respondent has, as Applicant's employee, misappropriated a large sum of money from applicant and also that he has committed an act of insolvency.

It is common cause that during January 2013, Applicant employed 1st Respondent as its Chief Financial Officer (CFO). It is further common cause, albeit for different reasons, that 1st Respondent abruptly left his employment during February 2014 and returned to South Africa with his family.

The eight claims of misappropriation of funds relied upon by Applicant are that, as CFO of the Company, 1st Respondent transferred monies to the tune of approximately R5 million from Applicant's bank account into the accounts of persons or entities residing or conducting businesses in South Africa, to whom 1st Respondent had a connection. That the transactions concerned were done without the knowledge and consent of the company's Directors.

In Kleinhans v van der Westhuizen NO 1970 (2) SA 742 (A) at G it was held that a liquidated claim means a claim whereof the amount is fixed either by agreement, or an order of court or otherwise. The court went further to state on page 745 at H that:

"Although claims for damages (delictual or contractual) are generally are generally in the nature of unliquidated claims, this is so only when (as is usually the case) the monetary value thereof is not already determined, or likely to be capable of determination with ease and expedition. In every case

10 This “rule” has become popular recently, see Orestisolve (Pty) Ltd t/a Essa Investments v NDFT Investments Holdings (Pty) Ltd and another 2015 (4) SA 449 (WCC)

where the monetary value is determined, or is capable of easy and expeditious determination, the claim is (or should be) regarded as liquidated"

It appears from Applicant's founding affidavit that the investigation into the company's financial affairs was still ongoing as at the time this application was lodged. I am however satisfied that the claim is capable of easy determination and is therefore a liquidated claim despite the fact that the claim is basically a claim for damages. In any event, the locus standi of Applicant is not in dispute.

Although Respondent admits that the money referred to in this matter was received on his behalf by persons or entities nominated by him, he disputes the allegations by Applicant that he has misappropriated the said money. Counsel for 1st Respondent argued that this fact creates a dispute of fact between the parties and that this application should be dealt with according to the so called Badenhorst rule-(Badenhorst v Northern Construction Enterprises (Pty) Ltd 1956 (2) SA 346 (T) where it was stated that where a respondent disputes his or her liability on bona fide grounds, it is improper for an applicant to seek to recover a disputed debt by sequestration proceedings rather than by usual action procedure.

In line with the decision in Badenhorst (supra)  I find that it is improper for Applicant to try and recover a disputed debt by way of application proceedings as this is clearly an abuse of process

For this reason I make the following order:

1. Application for compulsory sequestration against 1st and 2nd Respondents' estates is dismissed with costs.

2. In the event of a need for Applicant to bring sequestration application after finalization of successful action proceedings, it might be necessary to supplement the instant sequestration application papers.

Mbethe v United Manganese of Kalahari (Pty) Ltd (42213/2014) [2016] ZAGPJHC 8 (11 February 2016)

Companies Act 2008-Derivative action-section 165(5) of the Companies Act, 2008 ”)

This is an application in terms of section 165(5) of the Companies Act, 2008 (“the Act”) to institute a derivative action in the name of the respondent, United Manganese of Kalahari (Pty) Ltd, in terms of a demand made by the applicant, Lazarus Mbethe, in terms of subsection (2), which the respondent has refused to comply with as contemplated in subsection (4) (b) (ii).

This has, in and of itself conferred upon the applicant, as a director and Chairman of the respondent, locus standi to approach the Court in terms of subsection (5) as contemplated in subsection (2) (b).

However, the applicant insists that in bringing the application he does so, not do so only in his capacity as Chairman and a director of the respondent, but also in his representative capacity as Chairman and director of Majestic Silver Trading 40 (Pty) Ltd (“MST”), its majority shareholder and as Chairman and director of Pitsa Ya

Setshaba Holdings (Pty) Ltd (“PYS”), and as a trustee of the Kalahari Community Trust (“KCT”), both indirect shareholders of the respondent, for whose benefit the respondent was allegedly formed. However, no resolution to this effect was produced and it is of some significance that neither PYS nor the Trust have themselves leveled the complaints against the management of the respondent which is the subject matter of the current demand, nor are they parties to the current proceedings which have been launched in the applicant’s name. The applicant thus, only has locus standi to bring the current proceedings in his capacity as a director of the respondent dealt with below.

The applicant is one of the largest producers of manganese ore in the world. The applicant was formed as a Special Purpose Vehicle for Black Economic Empowerment purposes, which was a precondition for the granting of the prospecting and ultimately, mining rights to the respondent on 10 March 2008.

The shares in the respondent were allocated in the ratio 51% to 49% between a local company, Majestic Silver Trading 40 (Pty) Ltd (“MST”) with BEE objectives, and a Russian based company, Renova Manganese Investments Ltd (“Renova”), that was tasked to establish and run the mining operations. With a view to benefiting the local  Kuruman community and to achieve its BEE objectives,  the KCT was founded by the applicant and MST’s majority shareholding in the respondent was in turn allocated to:

5.1.           Samancor Manganese-38%

5.2.           Chancellor House Minerals Resources -27%

5.3.           PYS- 27%

5.4.           KCT- 8%

With assets of this magnitude, attempts have been made to skim off the profits generated by the respondent through management and other contracts, leaving little, in relative terms, for the benefit of the community for whose benefit KCT was formed. Indeed, there is no evidence of any dividends having been declared to the trust to date, despite profits having been made. Amongst these contracts are the extremely lucrative iron ore crushing contracts awarded to mobile operators which form the subject matter of the current application. 

In order to conduct its mining operations the respondent requires to crush the ore-bearing rock and commenced the construction of a fixed crushing and screening plant which was designed to handle the entire projected production of ore-bearing rock. However, whilst this plant was being built and thereafter, to absorb increased demand, the respondent elected to employ a number of mobile crushing and screening contracting companies to perform this task on a month to month basis.

One of such companies was Zastrospace, which was employed and retained, it is conceded, not for commercial reasons but to further broad BEE objectives and to benefit the some 27 local communities that it purportedly represented. Indeed it is averred that the Zastrospace contract has always been considered as an initiative to

benefit local communities and it is conceded that it was not “an arm’s length” transaction in the strict commercial sense.

The preservation of the Zastrospace contract, worth several millions of rands, which was allegedly terminated for commercial reasons due to the decrease in demand for iron-ore, is an overriding motivation for the current application, as I will demonstrate below.

It is averred that Roelofse’s proposed management fee of 30% was disclosed to the respondent in the business plan presented by him to Mr Danie Lourens (“Lourens”), then in charge of the respondent. However, ultimately, this management fee was not claimed by Roelofse personally and instead, was claimed through his management company.

During the period of the Zastrospace contract, Cytopix earned approximately R 10.8 million as a management fee (but at least in excess of R 7 million on the basis of the applicant’s argument that its gross turnover was R 23 million and not R32 million.) Although the averment is made that part of the 30% went to projects in Kuruman, there is no evidence of this. Its wage bill, including that of its managing director, Roelofse was R 365 508.33 per month of which it can safely assumed that Roelofse, quite apart from his interest in Cytopax, got the lions share. Its expenses, apart from its management fee, were minimal spending only R 11 000 per month on diesel and R8000 per month on administration expenses. It can, thereofore, also be safely be assumed that much of its R 5 million in expenses largely was earned by way of salary by Roelofse.

This in itself is a story to tell. Although the respondent has insisted that there is nothing sinister in its termination of the Zastrospace contract as it was terminated purely for commercial reasons, its   crushing contract with AMC was not terminated although its rates were only marginally lower than Zastrospace which had applied for and been granted an increase in its rates. Indeed, the applicant was under the misapprehension that the AMC contract had replaced the Zastrospace contract. It would seem also that attempts were made to ex post facto  justify the termination of the Zastrospace contract by querying the 30% management fee earned by Cytopix and requesting details of the projects it allegedly benefitted. It is of marked significance that those terminating the contract did not purport to do so on anything other basis than on commercial grounds.

On hearing about the termination of the Zastrospace contract, on 21 July 2014, the applicant, as Chairman of the respondent, instructed the company secretary to suspend the holding of all committee meetings as they were unlawful in so far as they were presided over by Ramaite who was not a Board member, and were allegedly rogue, making decisions which they could not validly make without Board approval which were merely rubber-stamped by the Board. Insisting that this would have effectively hamstrung the respondent’s business which was conducted through the delegation by the Board of its powers to committees, this instruction was ignored by Kriek, Louw and Raimate.

This prompted the applicant, through his attorneys, to propose that the issue of rogue committees be addressed at Board level at a meeting to be scheduled. This

was dismissed out of hand by the respondent’s attorney,which left the applicant little alternative but to address a statutory demand in terms of section 165 (2) of the Act to the respondent on 22 October 2014, which is the subject matter of the current application.

The analysis of the law to the facts must be preceded by an analysis of the demands sought to be enforced. Five demands have been made essentially aimed at:

preventing the conducting of the business of the respondent through rogue committees and any persons other than Board members serving and voting on any matter to be decided by such committees ;

suspending: the holding of all committee meetings by Kriek and Raimaite ;

suspending Kriek as CEO pending an investigation of several complaints leveled against him including his decision to termintate the Zastrospace contract and retain AMC which was not BEE compliant; and

investigating the consultancy agreement with Pangolin CC of which Lourens was the sole member;

  precluding Ramaithe, as a non Board member, from  sitting on any committees where it was prescribed that such be comprised of only Board members; and

       interdicting Raimate from purporting to act as a deputy CEO when he has not been appointed as such;

       reinstating the Zastrospace contract, alternatively declaring its termination unlawful and of no force and effect.

          A proper analysis of the statutory demands against the aforementioned factual matrix demonstrates that, although dressed up in the noble cause of promoting good corporate governance and the upliftment of the Kuruman community, it is essentially all about the retention of the Zastrospace contract . It was only after the purported termination of this contract by way of committee that such committees have become the subject of complaint by the applicant in the interests of good corporate governance. Needless to say the Court approaches such concerns with some cynicism, as it does the respondent’s ex post facto concerns about the community to justify its termination of such contract.

REQUIREMENTS FOR THE STATUTORY DERIVATIVE ACTION

39. The relevant portions of Section 165 provide:

Interpreting the section ( in light of the aspects underlined by me), it is apparent that in terms of subsection (1), section 165 has  replaced the  common law derivative action with a statutory derivative action.

41.            Locus standi is conferred upon a shareholder or a director to serve a statutory demand upon a company (section 165(2)(a) and (b)) to commence or

continue legal proceedings, or to take related steps provided that it can be established that this is to protect the legal interests of the company.

42.            However, a person other than a director or shareholder may also make such a demand with leave of the Court if it can be established that it is either necessary or expedient to do so to protect that person’s (not the company’s) legal right ( section 165 (2) (c))

43.            On receipt of the demand, the company  on whom it is served has a number of options. It can either:

43.1.        apply to Court within 15 business days to set aside the demand   (section 165 (3)); or

43.2.        appoint an independent and impartial person or committee to investigate whether the demand is valid and whether to comply with  the  demand would be cost expedient and in the best interests of the company  and to report to the Board thereon within 60 business days, or such longer time that the Court, on application, may allow (section 165 (4)(a) read with subsection (b)).

44.            On receipt of such a report the company may either:

44.1.         comply with the demand ( section 165(4)(i)) ; or

44.2.        serve a notice refusing to comply with the demand (section 165(4) (ii)).

The South African statutory derivative action has been substantially influenced by that in Australia, Canada and England.  The leading Australian case of Swansson v RA Pratt Properties Pty Ltd [2002] NSWSC 583, quoted with approval in Mouritzen v Greystone Enterprises (Pty) Ltd 2012 (5) SA 74   at paragraph [51] ,  laid down that there are two interrelated questions in determining good faith. First, the applicant must honestly believe that a good cause of action exists and that it has a reasonable prospect of success.  As  a converse of this, the applicant must also show that the application is not brought for a collateral purpose. In this respect, the requirements of good faith in subsection (5) are a corollary of the requirements of bad faith in subsection (3) where not only must it ne shown that the demand is frivolous and vexatious, but also that it is without merit.  The merits of the demand are thus a crucial aspect of the requirement of good faith and the absence thereof.

155.         In Swanson v RA Pratt Properties Pty Ltd (supra), it was held that the applicant may be disbelieved if his proclaimed interest in the pursuit of the action is so unreasonable that no reasonable person in the circumstances of the applicant would hold such a belief. In this respect the first part of the test of good faith is not purely a subjective one, but has an objective element and is tied up with the requirement that the demands have merit and are in the interests of the company.

156.         In this resect, the requirement of good faith is also inextricably tied up with the other substantive requirements in the subsection. Where it is not shown that the proposed action has merit (in the sense that a legally cognizable cause of action exists), and is in the interests of the company , it would be harder for the applicant to

satisfy the Court that the application is brought in good faith as no reasonable person would in such circumstances want to pursue such an action. Conversely, where the derivative action appears to have merit and is in the interests of the company, it would more readily be accepted that the applicant is acting in good faith unless there are objective circumstances to establish otherwise.

157.         But this does not mean that there is lesser threshold required to establish good faith than required to establish the other requirements of the section which must be established by the applicant on a balance of probabilities .

I accordingly make an Order as follows:

194.1.     The main application is dismissed with costs including the costs consequent upon the employment of two counsel. These costs do not include the costs of Badenhorst SC’s report.

194.2.     The costs of the interlocutory application to set aside the appointment of the respondent’s attorneys and Badenhorst SC and to strike out Badenhorst’s report are awarded to the applicant.

Investec Bank Limited v Le Roux (575/2014) [2016] ZAGPJHC 11 (11 February 2016)

Sequestration application- attorney’s estate- s.8 (b) of the Insolvency Act 24 of 1936 - nulla bona return-immaterial that nulla bona six months old

This is an application for the provisional sequestration of the respondent’s, an attorney’s, estate on the basis of s.8 (b) of the Insolvency Act 24 of 1936, often simply referred to as a nulla bona return. The three main issues were whether an act of insolvency had been shown, whether the sequestration would be to the advantage of the respondent’s creditors, and whether the court should exercise its discretion in granting the relief sought.

The submission was that s.8(b) envisages two separate acts of insolvency; the first is committed when upon demand the debtor is not able to satisfy the judgment and is also not able to indicate sufficient disposal property to satisfy it. The second is committed when it appears from the return of service of the sheriff that he has not found sufficient disposal property to satisfy the judgment.

The applicant submitted that the respondent’s express admission of these matters precluded him from now attacking the return and the founding affidavit as not establishing an act of insolvency. Reliance was placed on the judgment of Heher JA in Wightman t/a JW Construction v Headfour (Pty) Ltd and Another[2008] ZASCA 6; ,2008 (3) SA 371 (SCA) at paragraph [13]. That paragraph deals with the effect of a bare denial in motion proceedings, and says that parties are bound to their affidavits.

In civil proceedings, be they action or application, the effect of an admission – certainly while it stands, and there was no application here to withdraw these ones –

is that the court has no power to decide the issue. It has, by the parties’ agreement, not been placed before the court for its adjudication.

[15] This is not only the consequence of the accepted law of procedure, but also of statute. S.15 of the Civil Proceedings Evidence Act 25 of 1965 provides as follows:

“15  Admissions on record

It shall not be necessary for any party in any civil proceedings to prove nor shall it be competent for any such party to disprove any fact admitted on the record of such proceedings.”

[16] Two observations are necessary. The first is that this section obviously applies to factual admissions only, and not to admissions of matters of law. The second is that as regards matters of law, the pleadings in civil proceedings, be it action or application,[4] define the issues between the parties. 

The next point is whether the return of service is stale. The facts are that the writ was served on 25 July 2013, and the application for sequestration was issued on 14 January 2014, nearly but not yet six months later. In their loose-leave publication Joffe at al, High Court Motion Procedure: A Practical Guide, LexisNexis, the authors say that where the nulla bona relied upon is older than six months, the applicant must provide proof that there has been no material alteration in the respondent’s financial position in the interim.

[23] The rationale for such a rule is not clear.  The arms-length creditor/applicant will have little access to or knowledge of the debtor’s affairs. And when the matter comes before the court the debtor will have had an opportunity to resist the application by, if it applies, showing that she or he has assets to satisfy the judgment. And if she or he does not have assets to satisfy the judgement, then the applicant’s difficult burden of showing no improved financial position would in any event have been discharged.

[24] Certainly the legislature in s.8(b) of the Insolvency Act did not require the nulla bona return to be younger than seven months; how then could the courts legitimately impose the limitation? The only explanation for the rule could be that it is simply a rule of practice, and adjunctive to another rule of practice, and not adjunctive to a statute, which in view of the constitutional separation of powers it could never be.

[25] One such explanation could be that it is only if the application is not served on the respondent, and a provisional order is thus sought without notice to the respondent, that such a requirement makes sense and, perhaps more importantly, could be imposed by a court. Then one rule of practice (younger than seven months) is imposed to ameliorate another rule of practice (no notice to the respondent in cases of nulla bona), and no issues of offending separation of powers arise. 

[26] In  Abell v Strauss, 1973 (2) SA 611 (W) at 613B, relied on by Joffe at al, Irving Steyn J dismissed an application based on a return that was “some seven months old” on the basis of dicta in Bhyat v Khurishi, 1929 TPD 896. I return to Bhyat below,

but point out that MT Steyn J in Rodrew (ibid) at 139 B to C, also referred to by Joffe at al, in turn also referred to Bhyat.

[27] Bhyat was concerned with whether there had been justified reliance on s.8(g) of the Insolvency Act 32 of 1916, whereby an act of insolvency was committed when the debtor suspended payment of his or her debts. A provisional order had been obtained without notice to the respondent, and Feetham J remarked by the way that notice ought to have been given.  The judge dismissed the application however on the basis that neither the act of insolvency nor factual insolvency had been shown. There was no statement that a nulla bona return had a use-by date in this context.[6]

[28] The editors of the report, however, referred to Kennedy and Parr v Heiman Bros., an unreported case decided on 18 November 1929 in the TPD, in which Tindall, J had remarked that it had always been the practice in that division to give notice to the debtor of a sequestration application unless the petitioner was relying on a nulla bona return.

[29] It may be apposite to point out here that in this division the practice directive now requires personal service in all sequestration applications.[7]

[30] Importantly, however, that was not always the case. It was, until relatively recently, a practice of substantial vintage, as the unreported Heiman Bros. evidenced, that an application for a provisional order of sequestration based on a nulla bona return did not need to be served on the respondent.

[31] It was in this context that Boruchowitz, J, writing for a full court of this division in an unreported judgment, referred to by Mr Nel for the respondent, Seaways (Pty) Ltd t/a South African Express Line v Rubin (31419/2010)[2013]ZAGPJHC 118 (24 May 2013),  pointed out  that a nulla bona return, whether recent or not, is sufficient to establish an act of insolvency for the purposes of s.8(b) of the Insolvency Act.

[32] The learned judge, in my respectful view, relegated the whole issue of staleness of a nulla bona return to its rightful place: that it might be relevant in the exercise of the court’s discretion not to grant a provisional sequestration order.

[33] In this case, where there was personal service of the application for provisional sequestration on the respondent, and where his defence on the facts is that he has no assets at all, there appears to be no role at all for the potential staleness of the nulla bona return. The respondent, for the rule to have had any role, would have had to have argued that the applicant ought to have placed more recent evidence before the court to show that the respondent’s position had not changed from him having no assets. But the respondent has done so himself?

[34] It follows that in my view the argument concerning the potential staleness of the nulla bona return must fail. That leaves the issue of advantage to creditors, and exercise of discretion. I deal with them together.

Advantage to creditors? And discretion?

[35] The respondent’s case in its answering affidavit is that he has no assets, has had none since 2010, and that he can hardly come by on his monthly income of R15 000. He explains that the provenance of the indebtedness is his suretyship for the indebtedness of a private company through which he and two others had acquired fixed property then worth R18m, assisted by a loan from the applicant on security of the property and the suretyships of the three joint venturers.

[36] The three fell out, the loan was not repaid, and the applicant sued for its money. It attached its security, but since according to the applicant the property was worth R20m, the applicant could easily recover full repayment of the debt by realising the security. Yet the applicant has never tried to sell the property, according to the respondent.

[37] In reply the applicant disclosed that the property was put up for sale sold by the sheriff by public auction on 9 November 2012, a year and nine months before the respondent asserted in his answering affidavit that the applicant had never tried to sell the property. No bids were received, and the applicant bought it in for R2.1m.

[38] The respondent also answered the applicant’s assertions that he was interested as member in five juristic entities, each of which owned fixed properties at some stage, and most of which still owned fixed properties. On his case, three of these have since been either deregistered or wound up, and of the remaining two he has resigned without retaining any interest.

[39] These assertions are challenged in reply. The applicant says that in the case of Zimzeni 150 CC the respondent is wrong in saying that it was finally deregistered on 16 July 2010. Its CIPC searches have revealed that as of 15 November 2013 this CC was still active and owned four fixed properties.

[40] In the case of Aeterno Investments 168 (Pty) Ltd, the applicant says that its searches revealed that as of 15 November 2013 it too was still active, owning four fixed properties, despite it having been finally deregistered, according to the respondent, on 16 July 2010.

[41] In both these two disputed cases, the evidence relied on by the respondent is a CIPC search which indicates that a deregistration process was somehow connected to the annual return.  One knows that under Companies Regulations 40(2), if a company has failed to file an annual return two years in succession, the commission may demand that it does so, failing which the commission may deregister the company. But that is a process that takes time, since as appears from Companies Regulation 40 generally, much opportunity is afforded the company to cure its default.

[42] Against this background the following factors weigh with me.

[43] First, the threshold for advantage to creditors is relatively low in arms-length sequestrations. Cameron JA (as he then was) said in Commissioner, South African Revenue Services v Hawker Air Services (Pty) Ltd, 2006 (4) SA  292 (SCA) at [29], that the court need only be satisfied that there was reason to believe, not even a

likelihood but a prospect not too remote, that as a result of investigation and enquiry assets might be uncovered that will benefit creditors.

[44] Second, I am unconvinced that the respondent has made a clean breast of his position in circumstances where he would fully have appreciated how important it was to have done so. For instance, why has he not explained the identity of his employer? Why has he not annexed any evidence substantiating his income level? Why not annexe returns of income to the SARS or other extraneous proof? What has happened to the assets of the juristic entities in which he admits having had an interest at some stage?

[45] Third, in exercising a discretion I weigh up the unenviable position of the applicant who cannot without a provisional order scale the stone wall put up by the respondent, against the inconvenience caused to the respondent by a provisional sequestration order. If he has assets that can be availed, they will out. In the meantime, he will be able to practice as an attorney, and he will be able to build up a new estate, and so start with a clean slate.

I grant a provisional sequestration order returnable on 18 April 2016, in terms of the draft that I have initialled, dated and marked “X”.

Pouroullis v Market Pro Investments 106 (Pty) Ltd (South African Bank of Athens Ltd and Absa Bank Ltd (20370/2015) [2016] ZAGPJHC 12 (12 February 2016)

Business rescue- s.131 (1) of the Companies Act 71 of 2008 -intervening creditor

This is an application by a director (“the applicant”) of the respondent (“the company”) under s.131 (1) of the Companies Act 71 of 2008 (“the Act”) to place the company under supervision and to commence business rescue proceedings. The first intervening creditor (“Bank of Athens”) and the second intervening creditor (“ABSA”) oppose the application. In a separate and earlier application under case number 3852/2015 ABSA had applied for the company to be placed under winding-up.

[2] The applications were both ripe for hearing and were argued together. So inter-related were they that counsel were agreed that if the business rescue application succeeds, the winding-up application must automatically be postponed; and if it fails, the winding-up application must automatically be granted. The parties were agreed too that reference could be had to both sets of papers for the adjudication of both applications.

The company’s existence centres around a single asset, fixed property of about 250 000 sq m, in Brakpan. The improvements are office blocks of brick and steel, and factory outbuildings.  They are all in good condition. These were let to an associated company, thereby providing a rental income. The company has no employees. The tenant has since been liquidated and the property has not had a tenant since the beginning of 2015. The company acquired the land in 1998 for about R985 000. ABSA is its only bondholder. The indebtedness to ABSA as of February 2015 was R14 987 460.

[5] The sole shareholder of the company is a trust, the Christos Pouroullis Investment Trust, which has two trustees. The applicant is one of them. The trust deed is not available, nor do we know anything about the powers of the trustees to litigate.

[6] The company is “financially distressed” as that concept is defined in s.128(1)(f) of the Act. It has defaulted on its monthly bond repayments to ABSA. These initially amounted to R213 544. It has let out a portion of its workshop at R40 000 per month, and it was negotiating in June 2015 to let out further space at R62 000 per month. It is unknown whether this materialised, although one rather suspects that if it had, an affidavit would have been forthcoming.

[7] The expert valuator put up by the applicant says that, going forward, the company ought to realise net rental income of about R181 000 per month.  If ABSA were not prepared to agree to reduced monthly payments, and if an accord with the Bank of Athens, to whom about R7,5m was owed, could not similarly be reached, the inevitable result would be that the property would have to be sold to pay the creditors.

[8] The value of the property is about R31m. Only sixty per cent of that value would be realised in a forced sale, such as would be the case in winding-up.

[9] The company is currently commercially insolvent in that it cannot pay its debts as and when they fall due for payment. It is also probably factually insolvent according to its balance sheet, because the liabilities as of February 2015 do not include the approximately R7.5m owed to the Bank of Athens. It included, that would result in a negative shareholder’s equity of about R7m.

[10]  If one assumes that ABSA would not agree to receive its debt repayment in instalments, and insisted on the full outstanding balance being paid immediately, the only way would be to liquidate the property. That could occur either in liquidation or in business rescue. On the applicant’s case, in business rescue it would return R31m, meaning that all the creditors would receive full payment, or in liquidation, in which event only R18,6m would be realised. Then the city council, SARS and ABSA would likely receive full payment of their claims, but not the other creditors, who would likely lose out completely.

[11]  On this basis, the applicant submitted, business rescue was still a better option that liquidation, because creditors would receive greater dividends that they would in liquidation.

The Bank of Athens argued that a prima facie case was not good enough. It relied on NEWCITY GROUP V ALLAN DAVID PELLOW NO (577/2013)[2014]ZASCA 162 (1 October 2014), at [16]. It submitted that in any event the application was not bona fide and should on that account fail. Here it relied on RICHTER v ABSA BANK LTD, 2015 (5) SA 57 (SCA) at [16].

[14]  It argued that the proposed business rescue plan was not bona fide, because there was no suggestion as to how to repay the ABSA instalments. On its own case, it could not afford it. It submitted that the valuation of R31m was fatally flawed, as it relied for part of the value on the failed tenancy. It pointed to the absence of the

information that ought to have been provided by way of notes to the income statement and balance sheet attached to the founding papers. It bemoaned the fact that no detail was furnished of the debt to the city council. The Bank of Athens argued too that the company had done nothing in the past year to sell the property.

[15]  ABSA made common cause with the Bank of Athens. But it also attacked the applicant’s locus standi, the issue of reasonable prospects as envisaged in s.131(4) of the Act, and generally whether the requirements of the Act had been met.

[16]  In view of the issues that the parties traversed, I propose dealing with the following: the question of locus standi; the appropriate test to be applied under s.131(4); and finally the factors that weigh in this case.

Locus standi

[17]  The applicant relied on his being a creditor, a representative of the shareholder, and a director, of the company. His directorship is irrelevant, since it is not included in the definition of an “affected person” for purposes of s.128 (1)(a) of the Act. ABSA argued that the applicant had not shown he had authority to represent the trust because not all the trustees have joined in the application. The applicant referred to the resolution passed by the trustees and submitted that it was clear that the applicant had been authorised by all the trustees to act in the litigation.

[18]  But the question is of course whether the trust deed gives the trustees the power to appoint one of them to represent the other in the litigation.[2] And in this case we have no evidence at all about the trust deed. On the face of it, we have trustees and a trust. And on the face of it, since a trust is in law not a separate juristic person, all the trustees should have joined. As a fact, they did not. In the result, in my view, the point is well-taken.

[19]  But the applicant does say he is a creditor, on the basis that he had lent and advanced R21000 to the company. He refers in support to the attachment that has the appearance of a simplified balance sheet, a document that he himself affirms as being correct. This is thus potentially a classic case of self-corroboration and it is usually not admissible. But there was no objection to it, and ABSA’s attack was on the contents of the document which refers to “Loans from Directors”, referring as it does to more than one director. Also, ABSA says it challenged the applicant on this issue, and the challenge remained unanswered, since no replying affidavit had been filed.

[20]  The challenge is at p56 para 14 in these terms: “It is not said how, where and on what terms that indebtedness arose.” The applicant submitted that there was nothing more to say. I do not accept that that is a satisfactory answer. The amount concerned raises at least an eye-brow, since it is large and rounded off. The applicant could have explained how it came about and for what purpose the loan was.

[21]  However, I am not sure that these questions are so serious as would entitle me to reject the evidence out of hand as being untruthful. Also, balance sheets often refer generically to “loans from directors”  in the plural, without intending to suggest

thereby that it was impossible that only one director had advanced the money. I will thus accept that the applicant has established his locus standi on this score.

The appropriate test to be applied

[22]  This issue was authoritatively discussed by Brand, JA in OAKDENE SQUARE PROPERTIES (PTY) LTD AND OTHERS v FARM BOTHASFONTEIN (KYALAMI)(PTY)LTD AND OTHERS, 2013. The learned judge there said, amongst other things, that a “reasonable prospect” means: something less than a reasonable probability; something more than a prima facie case; something more than an arguable possibility; a prospect based on reasonable grounds; and mere speculative suggestion is not enough.

[23]  He said too that the plan which the applicant is required to show must be either to restore the company to a solvent going concern, or at least to facilitate a better deal for creditors and shareholders than they would secure from the liquidation process.

[24]  But importantly, he also the following (at [33]): “[33] My problem with the proposal that the business rescue practitioner, rather than the liquidator, should sell the property as a whole, is that it offers no more than an alternative, informal kind of winding-up of the company, outside the liquidation provisions of the 1973 Companies Act H which had, incidentally, been preserved, for the time being, by item 9 of sch 5 of the 2008 Act. I do not believe, however, that this could have been the intention of creating business rescue as an institution. For instance, the mere savings on the costs of the winding-up process in accordance with the existing liquidation provisions could hardly justify the separate institution of business rescue. A fortiori, I do not believe that business rescue was intended to achieve a winding-up of a company to avoid the consequences of liquidation proceedings, which is what the appellants apparently seek to achieve.”

[25]  Against this background I proceed now to consider those factors that weigh in the present case.

The factors that weigh in this case

[26]  The first factor is that I cannot find that the prospect of restoring the company to commercial solvency is based on reasonable grounds. The figures do not wash; the anticipated net rental income is nowhere near what would be required to liquidate the monthly instalments due on ABSA’s first bond.[3] That does not take into account servicing the liability owed to the Bank of Athens and to the city council; or even SARS.

[27]  The answer offered by the applicant is to say that that is a matter for negotiation between the business rescue practitioner and the creditor concerned. But that is in my view no answer; it is merely stating an axiom.  It does not yet suggest why it is that these creditors would on a somehow or other basis take less by way of monthly repayment; nor when and how the indebtedness to them will then finally be paid.

[28]  The second factor is then where that takes one. If the company cannot be restored to commercial solvency, it must perforce liquidate its asset, the property, to

pay its debts. Where that leads one is straight into the debate about whether what the applicant is proposing is not simply an informal type of winding-up process, a scenario expressly frowned upon, even dismissed, by Brand, JA in the paragraph quoted above.

[29]  I have difficulty understanding why that result is not inevitable. It does not seem to me to matter whether in the informal winding up the body of creditors will be better off; that will always be the result if one’s postulate is that a business rescue practitioner will sell fixed property at a better price than a liquidator. It will also be the inevitable result if one accepts that, as a matter of course, the business rescue practitioner comes cheaper than the liquidator.

[30]  But self-evidently, if that type of argument were valid, most liquidations should systemically be business rescues, because on that basis the business rescue system will always render a better dividend than liquidation.

[31]  The third factor that weighs with me is that one is not dealing here with potential job losses in the event of a liquidation. If jobs and family incomes were at issue, one looks differently at these things.

[32]  The forth factor that weighs with me is that this building is not a residential complex or a school. Again, if relocating families or educational facilities were involved, one would think twice.

[33]  The fifth factor that weighs with me is that the two largest creditors, both banks, are supportive of the liquidation route. Of the other creditors, the city council and SARS enjoy preferent positions. The R9.5m owed to group companies are potentially at risk; so too the concurrent debt owed to the Bank of Athens. But the latter supports the liquidation, as I have said, and the claims of associated companies will have to enjoy less protection than that of the bond holder.

[34]  The sixth factor is the position of the major creditor, ABSA. In traditional liquidation, the driver is the winding up of the company by the liquidation of its assets. That is the liquidator’s remit. In business rescue, the very objective, whether actually attainable or not, is different. The focus is first and foremost the rehabilitation of the company. Applied to the facts here, one envisages a business rescue practitioner who potentially seeks to serve also the interests of all concurrent creditors, including the other companies in the group, whose claims aggregate a sizable amount.

[35]  That suggests a potential conflict of interests between the bondholder and the debtor’s associated companies; or put differently, between the bondholder’s interests and the debtor’s interests. If such a conflict has to be resolved one way or the other, I suggest it is the bondholder who, by dint of the security it enjoys, ought to be preferred.

[36]  Finally, winding-up is not the end of the road for the company. As appears from s.131(7) quoted above, the court may make a business rescue order at any time during liquidation proceedings. It is not inconceivable that the up-to-date financial position of the company is actually different from what it was last year when the

applications were launched, good or bad. Interested parties will be free then to reassess their positions.

Conclusion

[35]  It follows from these considerations that in my view the business rescue application ought not to succeed. ABSA argued that I should disallow the costs of opposition to the liquidation application, on the basis of KNIPE v KAMEELHOEK, 2014 (1) SA 52 (FB) at [51]. It was there said, with reference to s.342(1) of the 1973 Act, read with s.97(3)of the Insolvency Act 24 of 1936, that special circumstances need be shown before the court would order that the costs of opposition to a winding-up order would be allowed.

[36]  I have found the submissions on behalf of the applicant helpful and pertinent, and to the extent necessary will make an appropriate order in this regard.

[37]  In view of the parties’ agreement, I thus make the following order:

(a) The application under case number 20370/2015 is dismissed with costs.

(b) In the application under case number 3852/2015 I issue a provisional winding-up order, returnable on 18 April 2016, in terms of the draft I have amended, initialled, dated, and marked “X”.

(c) I direct that the costs of the opposition to the provisional winding-up order under case number 3852/2015 shall be included in the costs of winding-up.

Van Der Merwe and Others v Zonnekus Mansion (Pty) Ltd and Others (4653/2015B) [2016] ZAWCHC 11 (18 February 2016)

Business rescue-s 131-opposed-liquidation order was granted prior to application-liquidation in progress

This is an application for an order placing the first respondent, Zonnekus Mansion (Pty) Ltd (“Zonnekus”), under supervision and commencing business rescue proceedings as contemplated by section 131 (1) of the Companies Act 71 of 2008 (“the Act”).

[2] There are five applicants. The first and second applicants are Mr Gary Van Der Merwe and his daughter Candice Van Der Merwe. The third applicant is the Eagles Trust (“the Trust”). Bank on Assets Global (Pty) Ltd and Helibase Swaziland (Pty) Ltd are the fourth and fifth applicants, respectively.

[3] The respondents who oppose this application are the Standard Bank of South Africa Ltd (“the Bank”) and The Commissioner for the South African Revenue Service (“SARS”).

[4] Because SARS denied that any of the applicants had locus standi to bring this application it is necessary, to commence with, to establish whether at least one of the applicants is an “affected person”, as defined in the Act.

[5] In terms of section 128 (1) of the Act a shareholder of Zonnekus is an affected person and has standing to bring this application in terms of section 131 (1) of the

Act. The allegation is made in the founding affidavit that the Trust is the sole shareholder of Zonnekus. Mr Van Der Merwe attached to his founding affidavit a document purporting to evidence the fact that the Trust had resolved to bring this application. The document did not do that. It related to different litigation between different parties, and was signed by only two of the trustees. However, all of the trustees have filed affidavits in support of this application. Counsel for SARS, with whose submissions in regard to locus standi the Bank aligned itself, submitted that the affidavits were not evidence of the Trust having resolved to bring this application. Mr Van Der Merwe’s affidavit stated that the trustees brought this application in their representative capacities, and the confirmatory affidavits deposed to by the other trustees confirm that allegation. In my view that is evidence enough of the Trust having resolved to make this application.

[6] In argument SARS also placed in dispute the allegation that the Trust was the sole shareholder of Zonnekus. The answering affidavit filed on behalf of SARS does not bear this out. It refers the reader to paragraph 20 of the particulars of claim in an action SARS has instituted against Mr Van Der Merwe, his daughter Candice, Zonnekus, the Trust and others. In paragraph 20 of the particulars of claim the following allegation is made by SARS: “The Eagles Trust is the registered owner of 100% of the issued share capital…”  in Zonnekus. This allegation, I think, puts an end to the question whether the Trust is the sole shareholder of Zonnekus. In the circumstances I am satisfied that the Trust, at least, is an “affected person” within the meaning of section 131 of the Act, and that it has standing to make this application. It is not necessary, therefore, to deal with the standing of the other applicants.

[7] Having found that the Trust has standing to bring this application it is necessary to turn back the clock. On 20 June 2014 the Bank instituted proceedings for the winding up of Zonnekus on the basis that Zonnekus was commercially insolvent. Zonnekus opposed the liquidation application and, by agreement between the parties, the liquidation application was postponed to 11 September 2014 for hearing on the semi-urgent roll. Zonnekus was ordered to file its answering affidavit by 8 August 2014.

[8] Notwithstanding various demands by the Bank no answering affidavit was filed. However, on 9 September 2014, just two days before the hearing, Zonnekus launched an application for the postponement of the liquidation application. On 11 September 2014, the postponement application was dismissed after the Court had heard argument on behalf of the parties. Zonnekus was placed in provisional liquidation, with the return day being 28 October 2014.

[9] Zonnekus did not oppose the application for liquidation on the return date. Accordingly, on 28 October 2014, the provisional liquidation order was made final.

[10] The first meeting of creditors was convened by the Master of the High Court on 2 December 2014. At this meeting the Bank proved three claims against Zonnekus. It bears mentioning, at this juncture, that none of the Bank’s claims are in dispute. The Bank’s claims against Zonnekus arise as a result of two mortgage loan agreements and a building loan agreement concluded between it and Zonnekus. It is evident, therefore, that the Bank is a secured creditor by way of the three mortgage bonds referred to above.

[11] The second meeting of creditors took place on 24 February 2015. Certain of the applicants sought to prove claims in the insolvent estate at this meeting but they

were unsuccessful. This was followed, on 25 March 2015, by an application issued by the liquidators in terms of section 417 of the Companies Act for the purposes of convening an enquiry into the affairs and business dealings of Zonnekus. The first session of the enquiry was scheduled to take place on 20 and 21 April 2015.

[12] On 13 April 2015, that is about ten months after the liquidation application had been issued, and approximately one week prior to the enquiry in terms of section 417 commencing, this application for business rescue was issued.

[13] In response to this application a preliminary point was taken by the Bank and SARS that a business rescue application was not competent in respect of a company which was in final liquidation. The preliminary point was argued before this court on 28 May 2015. On 10 June 2015 the preliminary point was resolved in favour of the applicants and it was held that business rescue proceedings could be brought in respect of a company in final liquidation. An order was made postponing the application to the semi-urgent roll on the earliest date which the parties were able to agree, alternatively a date to be determined by the Judge President of this Court with further directions relating to the filing of answering affidavits, replying affidavits and heads of argument.

[14] The matter then came to be set down for hearing on 1 December 2015. That this had occurred came to the knowledge of the applicants on, or very shortly after, 20 October 2015. However, the set down of the matter for hearing on 1 December 2015 had not occurred in accordance with an agreement between the parties, nor was it a date determined by the Judge President of this Court as contemplated in the order which had been made on 10 June 2015. Binns-Ward J had been allocated the matter on 1 December 2015. A reading of the transcript of the judgment delivered by him on that day reveals that the applicants had taken the point that the matter could not proceed in view of the fact that the set down of the matter had occurred improperly. The learned judge held that the point was well taken and in the course of his judgment criticised the applicants for their inertia when confronted with the fact of the set down of the matter for hearing on 1 December 2015. In the result he made an order, the material terms of which provided that the business rescue application was postponed for hearing in the fourth division on the semi-urgent roll on 4 February 2016; the applicants were directed to deliver replying affidavits by not later than 20 December 2015; and heads of argument were to be delivered by the applicants not later than ten days before the postponed hearing date. It is to be noted that the order recorded that the timetable which it incorporated had been proposed by the applicants themselves.

[15] The applicants did not comply with any of the requirements imposed upon them by the order made on 1 December 2015. Time went by, however, and in view of the voluminous record an early allocation of the matter took place. The papers were thus given to me several days in advance of the allocated hearing date.

[16] Included in the Court file was a practice note which had been filed by the applicants on 14 January 2016. The practice note indicated that the matter would not be able to proceed on 4 February 2016 due to the fact that replying affidavits had not been finalised. The practice note went on to say that the first applicant, Mr Gary Van Der Merwe, who was the accused in a criminal trial relating to alleged tax fraud had been engaged in the preparation of heads of argument which were to be submitted by 10 December 2015 and that considerable time and effort had been expended by

him in this task as a consequence of which it had been impossible for the replying affidavits to be finalised before 20 December 2015. According to the practice note, this fact had been communicated to the representatives of the Bank and SARS on 21 December 2015. It was further stated that Mr Van Der Merwe had had to travel to Australia to join his wife on 24 December 2015 because it had been necessary for her to undergo emergency surgery there. In conclusion, the practice note contained the submission that the matter could not proceed on 4 February 2016 and that the applicants would request a postponement of the matter to a date to be agreed upon by the parties.

[17] Less than two days before the matter was due to be argued I was advised by my registrar that a set of replying affidavits were to be delivered to my chambers. After making enquiries I ascertained that the papers which were sought to be handed to me were not accompanied by a written application for condonation. I accordingly advised my registrar not to accept delivery of the papers which I noted extended to almost two hundred pages.

[18] At the commencement of the hearing on 4 February 2016 counsel for the applicants handed up a written application for condonation of the late filing of the replying affidavits. The application was dated 3 February 2016 and had been delivered to the Bank and SARS only hours previously. Counsel for the Bank and SARS indicated that the condonation application would be opposed and that wished to argue the matter without filing any answering affidavits.

[19] Shorn of unnecessary verbiage the basis for the condonation application boiled down to the following uncontroverted facts. Mr Van Der Merwe had been ordered on 30 November 2015 by Le Grange J, who had presided in the criminal trial adverted to above, to submit comprehensive heads of argument by 10 December 2015. The criminal trial had run for two years and the record was in excess of seven thousand pages. In the result Mr Van Der Merwe had been engaged in the preparation of the heads of argument required in the criminal matter until 18 December 2015. On 21 December 2015 the Bank and SARS had been requested to afford for an extension of time for filing of the replying affidavits until 11 January 2016. The request had been refused. Mr Van Der Merwe then had to travel to Australia on 24 December 2015 because his wife had undergone emergency surgery there. He returned to South Africa on 15 January 2016.

[20] In summary, then, the failure on the part of the applicants to file a replying affidavit by 20 December 2015 was attributed to the fact that Mr Van Der Merwe had been otherwise engaged in attending to the criminal proceedings against him. His absence overseas until 15 January 2016 is only relevant in so far as it relates to the delay which occurred in relation to the launching of the condonation application.

[21] Does this form a basis for the granting of condonation for the delivery of replying affidavits almost seven weeks after the date which the applicants themselves had proposed they should be filed, and only a day or so before the postponed date of the hearing? In CSARS v Van Der Merwe 2016 (1) SA 599 (SCA), a case co-incidentally involving both Mr Van Der Merwe and his daughter, the Court had occasion to repeat the well-known rules relating to condonation. The case emphasised the factors that are relevant, namely, the degree of non-compliance, the nature of the explanation given for the delay, the effect of the delay, the importance of the case, the convenience of the court, the avoidance of unnecessary delay in the administration

of justice and the interest of all in the finality of litigation. The case also stressed the importance of applying for condonation without delay.

[22] I do not think that it can be said that the applicants have made out a case for the condonation of the late filing of replying affidavits. It was they who proposed the terms of the order made by Binns-Ward J on 1 December 2015. Having been ordered by Le Grange J the day before to file heads of argument they were fully cognisant of the fact that further work was to be done in the criminal trial of Mr Van Der Merwe and what that work would entail. They did nothing to alert any of the respondents to the possibility that they might not be able to comply with the court order they had proposed until after the time for compliance had expired. And when respondents refused to consent to the late filing of replying affidavits the condonation application was not launched immediately. Nor was it launched immediately after Mr Van Der Merwe’s return from Australia on 15 January 2016. Instead, the applicant sought to defer the matter by requesting the Judge President, in a practice note, not to allocate a judge for the hearing of the matter on 4 February 2016. That is not a permissible way to avoid the consequences of an order directing that papers be filed according to a given timetable. In fact, I consider it to have been an entirely improper attempt to defer the hearing.

[23] Having heard argument in relation to the application for condonation, and for the reasons briefly set forth above, I refused it with costs including the cost of two counsel where two were employed.

[24] Counsel for the applicants then sought to move the application for the order sought in the main application and to hand up heads of argument in relation to thereto. These ought to have been filed by 20 January 2016 in terms of the order which had been made on 1 December 2015. There was no written application for the late filing of the heads of argument but an application for condonation was orally made from the bar. The reason for the late filing of the heads was that counsel who had been briefed to prepare them had been engaged in assisting in the preparation of the written argument which was required in Mr Van Der Merwe’s criminal trial and then in the preparation of the replying affidavits. He had been too busy, it was said, to draft the heads of argument. An apology was tendered.

[25] It is, of course, quite undesirable that the Court and the respondents should be deprived of the benefit of written heads of argument in advance of the hearing. Be that as it may, not to have proceeded with hearing would have prejudiced not only the respondents but also the proper and efficient administration of justice to an even more undesirable extent. Confronted with two unsatisfactory alternatives I chose that which I considered to be the least unsatisfactory, condoned the late filing of the heads of argument, and heard argument in the main application.

[26] It is regrettably necessary to observe that it is unacceptable that the Court and the respondents were held to ransom, as it were, in the manner described above. Litigants and their legal representatives have a responsibility to facilitate the efficient administration of justice by adhering to the rules of Court, and to Court orders which regulate process. That responsibility is even greater when the process is regulated by an order proposed by the defaulting party. The time will come when an apology will not suffice.

[27] I turn now to consider the merits of the main application. Zonnekus is a property owning company which owns five immovable properties. These are erf 13898

Milnerton (“Zonnekus Mansion”) which is unencumbered, erven 8666, 901 and 902 Milnerton, and erf 13421 Somerset West. Zonnekus is indebted to the Bank in an amount just exceeding R5.3 million. The Bank holds security in the form of three continuing covering mortgage bonds registered over two of the Milnerton properties and a bond registered over the Somerset West property. The remaining Milnerton property is bonded to Absa Bank Ltd. Zonnekus allegedly owns movable property in the form of certain aircraft. It has no employees and conducts no business in the accepted sense of the word, at least not a business which can be said to be ongoing. I am mindful of the fact that it was submitted on behalf of the applicants that Zonnekus held the immovable properties it owned with a view to later developing them, and that this was its business. However, it is only in respect of the Somerset West property that there is any evidence of the business of property development being conducted by Zonnekus, and this development ground to halt some time ago as a result of inadequate funding.

[28] It is also necessary to mention that Zonnekus is no stranger to financial difficulty. It was indebted to Nedbank Ltd for an amount of approximately R 7 million in respect of a mortgage loan. Nedbank had brought a winding-up application against it during August 2013 on account of it having defaulted in respect of the mortgage loan. That winding up application was withdrawn when Zonnekus managed to raise the funds to pay Nedbank. It is thus apparent that from at least August 2013 Zonnekus had been experiencing financial problems. If the business of Zonnekus was property development, it is apparent that for some time it has struggled.

[29] SARS allege that Zonnekus is indebted to it in the amounts of R 30 million and R 12 million, respectively. It caused proceedings to be instituted during May 2015 in this Court against Zonnekus for recovery of these amounts. In the same action SARS claims various declaratory orders and the payment of amounts of money against Mr Van Der Merwe, his daughter and the Trust. The action is defended by Zonnekus and the others and it is almost impossible to predict when it will finally be determined. It is not impossible, however, to predict that it is very likely that the action will take some time before it is finalised.

[30] It is also relevant to note that during April 2013 SARS sought and obtained a provisional preservation order in terms of section 163 of the Tax Administration Act, 28 of 2011, against, amongst others, Mr Van Der Merwe and Zonnekus. In terms of the preservation order Zonnekus was interdicted from dealing with, disposing of, encumbering or removing from South Africa any assets of which it is the owner. The preservation order was made final during March 2014 and has the effect that as matters presently stand Zonnekus cannot deal with any of its assets.

[31] Much was made in the papers, and in argument, of the running battle between SARS and Mr Van Der Merwe. This battle relates not only to allegedly unpaid taxes but also to the criminal trial presently pending in which Mr Van Der Merwe is accused of tax fraud. These disputes, however, do not seem to impact upon Zonnekus as much as they do upon Mr Van Der Merwe. I do not propose to canvass the full extent of the disputes. To do so would not materially assist in a determination of whether the proposed business rescue, which relates only to Zonnekus, would be viable. What the disputes do illustrate, however, is that the disputes between SARS, on the one hand, and Mr Van Der Merwe and Zonnekus, on the other, are wide-ranging and factually complex. It is overwhelmingly unlikely that they will be resolved in the short to medium term.

[32] Before going further it is necessary to deal briefly with the submission made by counsel for SARS to the effect that Zonnekus is not “financially distressed” but hopelessly factually and commercially insolvent. The argument was to the effect that Zonnekus was “dead”, not merely distressed, and could not be brought back to life through the implementation of any business rescue plan.

[33] The starting point is section 128 (1) (f) of the Act. It states that “ ‘financially distressed’, in reference to a particular company at a particular time, means that (i) it appears to be reasonably unlikely that the company will be able to pay all of its debts as they become due and payable within the immediately ensuing six months…”. The Act thus gives its own meaning to the expression “financially distressed”.

[34] It is safe to say that it is common cause between the parties that Zonnekus will not be able to pay all of its debts as they become due and payable within the immediately ensuing six month period. In my view, then, a purely physiological metaphor is inapposite and it must be held that Zonnekus is financially distressed as contemplated by the provisions of the above quoted section of the Act.

[35] To turn now to the proposed business rescue bearing in mind that all that is required of the applicants at this stage is that they “place before the court a factual foundation for the existence of a reasonable prospect” that a business rescue can be achieved (see Propsec Investments (Pty) Ltd v Pacific Coast Investments 97 Ltd and Another 2013 (1) SA 542 (FB) para 11). It must also be borne in mind that in Propsec it was also stated that “… To require, as a minimum, concrete and objectively ascertainable details of the likely costs of rendering the company able to commence or resume its business, and the likely availability of the necessary cash resource in order to enable the company to meet its day-to-day expenditure, or concrete factual details of the source, nature and extent of the resources that are likely to be available to the company, as well as the basis and terms on which such resources will be available, is tantamount to requiring proof of probability, and unjustifiably limits the availability of business rescue proceedings.” That statement was approved of in Oakdene Square Properties (Pty) Ltd and Others v Farm Bothasfontein (Kyalami) (Pty) Ltd and Others 2013 (4) SA 539 (SCA) at paragraph 31.

[36] In the first rescue plan postulated by the applicants in the founding affidavit Zonnekus Mansion, being erf 13898, Milnerton, which is unencumbered, is to be sold by the proposed business rescue practitioner for the sum of R 30 million. The claims of secured creditors will then be settled. The remaining immovable properties are to be developed by Zonnekus. A second rescue plan postulated in the founding affidavit envisages the sale of the movable assets allegedly belonging to Zonnekus and the use of the cash obtained thereby to develop the immovable properties.

[37] A third proposal is annexed to the founding affidavit. It envisages a different rescue plan. In terms of a so-called short-term proposal, all claims and loan accounts against Zonnekus are to be converted to share capital. The proposal goes on to postulate the reinstatement of the bond accounts of the banks. In the medium term it is envisaged that Zonnekus Mansion is to be developed into a “50 unit luxury retirement resort”. The funding necessary to undertake this development is estimated in the draft business rescue plan to be R 50 million. It is envisaged, then, that the three remaining Milnerton properties will be developed as a retirement complex requiring funding of some R 75 million. And finally, it is proposed that the

partly completed structure on the Somerset West property will be completed and sold.

[38] In the light of the proposed rescue plans can it be said that there is a reasonable prospect for rescuing Zonnekus?  By this I mean has it been shown that there is a reasonable prospect that Zonnekus can be restored to a solvent going concern, or will creditors or shareholders be better off than they would under the liquidation (see Oakdene Square Properties at paragraph [26]). It is also necessary, in my view, in considering these questions, to take account of the fact that the Act contemplates that a return to solvency, or the attainment of a better deal for creditors or shareholders, will be the product of the “temporary supervision” of Zonnekus, and a “temporary moratorium on the rights of claimants against the company or in respect of property in its possession” (see sections 128 (1) (b) (i) and (ii) of the Act).

[39] There can obviously not be an inflexible rule as to how long it should be before a rescue can be said to have been successful. But it is clear, I think, that the legislature intended by its use of the word “temporary” that any rescue plan should not be of indeterminable duration. Indeed,  that fact that section 132 (3) of the Act requires reports on progress to be filed if the rescue proceedings are not complete within a period of three months, is a strong indication of the legislature’s intention that the implementation of a plan should be of short duration.

[40] The resolution of the disputes between Zonnekus and Mr Van Der Merwe, on the one hand, and SARS on the other is central to the success of the business rescue. SARS makes it clear that it does not support the proposed rescue plan. There is no reason to think that until the disputes are resolved SARS will permit the assets of Zonnekus in respect of which the preservation order applies to be disposed of in order to facilitate the rescue. How long it will take for these disputes to be resolved is, of course, impossible to say. But it is clear that the issues in dispute are wide-ranging and the amounts involved are substantial, running into tens of millions of Rand. It appears to be unlikely that a resolution will be reached, through the Courts or otherwise, in the short to medium term. It is much more likely that a resolution of the disputes will take years.

[41] The Bank has also made it clear that it does not support the rescue plans. There is no reason to think that it will be prepared to revive its lending arrangements with Zonnekus, as postulated in the proposed rescue plans, in order to facilitate any of the various rescue proposals suggested by the applicants.

[42] What Mr Van Der Merwe describes in the founding affidavit as a business rescue boils down, in my view, to no more than the sale of the immovable property of Zonnekus and the payment of secured creditors. The draft business rescue plan annexed to the founding affidavit assumes that the banks will continue to fund Zonnekus by the reinstatement of their bonds. On the applicants version in excess of R 125 million for the development of the properties which are to be developed is required. Zonnekus does not have these funds and does not appear to be in a position to raise working capital against the security of its assets given that certain of its assets are mortgaged and especially in the light of the preservation order which has been obtained by SARS. These factors weigh heavily against the submissions made on behalf of the applicants that the applicants have established grounds for the reasonable prospect of achieving one of the two goals in section 128(1) (b) of the Act.

[43] Moreover, the selling of the assets of Zonnekus in order to pay creditors as is proposed by the applicants’ amounts to an informal liquidation of the kind expressly disapproved of inOakdene Square Properties (see paragraphs [33] to [35]). Business rescue was not intended to enable a company to liquidate its assets in its own time and its own pace as the applicants apparently intend.

[44] A further factor which I think is relevant is that Zonnekus has been in liquidation for a considerable period. This application was launched some four months after a final liquidation order was made, and has come to be heard almost two years after liquidation proceedings commenced. The passage of so much time, during which Zonnekus has been financially paralysed, and lacking in management and leadership, does not enhance the prospects of there being a successful business rescue.

[45] In African Banking Corporation of Botswana v Kariba Furniture 2015 (5) SA 192 (SCA) Leach JA observed as follows: “Suffice it to say that the company was clearly hopelessly insolvent and effectively dormant in that it had not traded for years and had no business contracts in place. This is not a case in which an ongoing business was likely to be rescued. It is a matter in which there was at best a forlorn hope, unsupported by any objective facts, that the company might rise from the dead. Consequently, I agree that there was no reasonable prospect of achieving the ends of business rescue…” (at paragraph [55]). In this context a physiological metaphor is, I think, apposite.

[46] In the circumstances I find that the applicants have not made out a case for the relief sought in the notice of motion.

[47] As to costs there is no reason why the usual rule, being that costs follow the result, should be departed from.

[48] I therefore make the following order:

The application is dismissed with costs, including the costs of two counsel where two have been employed.

Griessel and another v Lizemore and others [2016] JOL 34038 (GJ)

Business rescue – Resolution by director of company – Setting aside of

Between them, the applicants held 67% of the shareholding in the third respondent company, with the remaining 33% of the company’s issued share capital being held by the first respondent. In July 2015, the first respondent passed a resolution on behalf of the board of directors placing the company under business rescue. The second respondent was appointed the business rescue practitioner. The resolution was passed without the knowledge of the other shareholders and despite a meeting of shareholders, held three days earlier in which the suggestion that business rescue proceedings be considered was rejected. The first respondent contended that he did not have to notify the other shareholders of his intention to pass the directors resolution, since at that time he was the sole director of the company and could unilaterally resolve to begin business rescue proceedings and place the company under supervision in terms of section 129(1) of the Companies Act 71 of 2008.

In an urgent application, the applicants sought a declaration that the resolution to begin business rescue proceedings and to place the company under supervision had

lapsed and was a nullity. They also sought the setting aside of the resolution, alternatively, of the appointment of the business practitioner; and the removal of the first respondent as director of the company.

Held that the primary objective of business rescue is to prevent a viable company from closing down by allowing it an opportunity to regain solvency through the mechanism of business rescue provided it can be achieved within a reasonable time. It is for the person who wishes to place a company under business rescue on this alternative ground to prove that the company is financially distressed as required under section 129(1)(a); that it is not reasonably likely (or perhaps possible) for the company to be rehabilitated and continue in existence on a solvent basis as contemplated in section 128(1)(b)(iii). (It was not necessary to argue the appropriate threshold test); and that the development and implementation of a plan to rescue the company would result in a better return for creditors or shareholders than would occur from its immediate liquidation.

The Court found that each of the requirements to set aside the resolution in terms of section 130(5)(a) read with 130(1)(a) had been met. The effect of setting aside the resolution under section 130(1)(a) meant that the business rescue proceedings had ended.

The application succeeded.

Button NO and others v Akbur and others [2016] JOL 34153 (KZD)

Voidable preferences – Recovery of-section 29

Motion proceedings-for voidable preferences-allowed

Motion proceedings-dispute of facts-robust approach

In terms of section 29 of the Insolvency Act 24 of 1936, the applicants sought an order declaring that payment made by or on behalf of the first respondent totalling an amount of R2 493 000 in the two-and-a-half-month period prior to the liquidation of the close corporation of which the first respondent was a member, were voidable preferences – and authorising the applicants to recover the amount from the first respondent and / or the second respondent. The application is opposed by the first and second respondents on the ground that there were innumerable material disputes of facts and therefore the applicants ought not to have proceeded by way of motion court proceedings. It was also contended that the first and second respondents had been deprived of their rights to the audi alteram partem principle in terms of section 8(1) of the Constitution of the Republic of South Africa, 1996. Finally, it was argued that the payments which the applicants sought to recover were made in the ordinary course of business and did not constitute voidable preferences.

Held that the respondents bore the onus of proving that the dispositions were made in the ordinary course of business. The test is an objective one, namely, whether having regard to the fact that business methods and customs necessarily differ amongst the different spheres of the business world, the ordinary, honest and solvent businessman would have acted likewise in similar circumstances, or would have thought the transaction extraordinary. The Court found that the disposition was not a lawful one in the sense that it was not made in the course of business of the close corporation.

The defence by the insolvent that it did not intend to prefer one creditor above the others had to be proven by the beneficiary. The test in that regard was a subjective one, being the subjective intention of the insolvent, which is often inferred, in the absence of direct evidence, from the surrounding circumstances. The Court found that the first respondent had a clear intention to prefer either himself and / or the second respondent.

The application accordingly succeeded.

In determining when was the disposition made, the date of the actual disposition is relevant, not the date when on which authority was granted to the agent to make such a disposition. In proving that the disposition was to prefer one creditor above others, it is necessary to prove the effect of the disposition, namely, that all creditors were not equally treated in the distribution of assets. It must also be borne in mind that the person who benefitted from the disposition is necessarily always a creditor, which includes a surety or a person in a position analogous to that of a surety in terms of section 30(2) of the Insolvency Act, though not always the person to whom the disposition was made, and that the value at the date of the disposition is the relevant determining factor to ascertain that immediately after such a disposition was made, the debtors liabilities exceeded the value of his assets.

The respondents bear the onus of proof in proving that the dispositions were made in the ordinary course of business, the test is being an objective one, namely, whether having regard to the fact that business methods and customs necessarily differ amongst the different spheres of the business world, the ordinary, honest and solvent businessman would have acted likewise in similar circumstances, or would have thought the transaction extraordinary.

For example, a tripartite arrangement between the insolvent, one of his debtors and a creditor of the insolvent in terms of which a debtor makes a direct payment to a creditor of the insolvent, cannot be described to be in the ordinary cause of business. The disposition must be legal and valid in law to qualify for it to be within the ordinary course of business.

 The other part of the defence by the insolvent in that it did not intend to prefer one creditor above the others has to be proven by the beneficiary. The test applied being a subjective one, being the subjective intention of the insolvent, which is often inferred, in the absence of direct evidence, from the surrounding circumstances eg a disposition made whilst contemplating a liquidation or sequestration.

The applicants submit that payments were made by the close corporation to the first respondent totalling R2 493 000 between 26 June and 30 September 2013 in favour of the respondents and/or on behalf of the second respondent.

The first respondent's explanation for the transfer of funds from the close corporation on behalf of the second respondent to the attorney's trust account, was that these funds were due and payable to the second respondent and these were part of the repayments by the close corporation of loans taken from the second respondent, which payments he had directed that be made to the third party. Irrespective that there was no separate loan account for the second respondent, he believed that Vather, the close corporation's accounting officer, knew that he and the second respondent were the sole lenders of funds to the close corporation. According to the

first respondent, these payments were always prioritised and paid in the course of business of the close corporation.

The applicants' case is that Peter Andrews received funds without any specific instructions and upon enquiry, the first respondent informed him that the instructions for distribution thereof would follow in due course. This was odd as the funds were transferred in their ongoing conveyancing account, which had been previously opened for the first respondent. Peter Andrew had no knowledge that these funds were for the second respondent's account and the file was opened in the first respondent's name. The second respondent did not feature at all. According to Peter Andrews, the funds were disbursed at the express instructions of the first respondent as per annexure JDM3 of the founding papers. He referred to the funds as his, as per instructions dated 8 October 2013, "pay balance of my funds held in trust to the following account. . ." and gave the second respondent's account details.

I have undertaken an objective analysis of such disputes of facts, I have also taken a robust approach to such dispute of facts as advocated in Buffalo Freight Systems (Pty) Ltd v Castleigh Trading (Pty) Ltd and another. I therefore find that it is just and equitable to proceed with this matter by way of motion of proceedings. All the parties to the application were able to address and make submissions on the points at issue, irrespective of the dispute of facts that have been raised by the respondents. It is my view that there is no genuine dispute of facts in this matter as raised in the pre-trial conference and at the hearing of this application in so far as this application is concerned.

I therefore find that the applicants have discharged the onus placed upon them and are entitled to the following order:Declaring that the following amounts paid by the corporation from its Nedbank Kingsmead Branch bank account number: 1442014814 to the following persons in the following amounts, namely:1.1R41 000 (Asharf sal July) on 26 July 2013;1.2R11 000 (Ash expenses) on 12 August 2013;1.3R1 900 000 (n/l trust) on 16 August 2013;R200 000 (inv return) on 2 September 2013;1.5R50 000 (inv return) on 10 September 2013;1.6R41 000 (Ash salary) on 30 September 2013; and1.7R250 000 (inv return) on 7 October 2013.TOTAL: R2 493 000

Constitute voidable preferences of the property of the corporation, as debtor to, in favour of and for the benefit of the first respondent and/or the second respondent as the corporation's other creditors, within a period of 6 (six) months preceding the winding-up of the corporation at a time when its liabilities exceeded the value of its assets, were not made in the ordinary course of the business of the corporation and were intended to prefer one or more of the respondents' creditors above another, under and pursuant to the provisions of section 29 of the Insolvency Act 24 of 1936, as read with sections 32, 31, 30(1)(2) and 26(1)(b) of the Insolvency Act.

ABSA Bank Limited v Hammerle Group (Pty) Ltd [2016] JOL 33570 (SCA)

Winding-up application – Subordination of debt to other creditors of insolvent – Applicant a contingent creditor and was entitled to institute winding-up proceedings against the respondent

Alleging that the respondent was commercially insolvent and unable to pay its debts as envisaged in section 345 of the Companies Act 61 of 1973, the appellant brought an application in the high court for the winding-up of the respondent. The application

was dismissed on the basis that part of the debt giving rise to the application was extinguished by prescription; and the remainder thereof was not yet due and payable as it had, by agreement between the parties, been subordinated to the debts of other creditors of the respondent. The present appeal was with leave of the court a quo.

The debt referred to by the appellant arose from a loan which it had advanced to the respondent. The respondent denied in the answering affidavit that it was indebted to the appellant and raised two defences. First, that the appellant's claim under the loan agreement had prescribed and consequently that the debt had become extinguished. Secondly, that the loan advanced to the respondent had, in terms of the agreement between the parties, been subordinated in favour of the respondent's creditors, and as the respondent was indebted to its creditors in the amount of R2 205 657,07, the amount claimed by the appellant was not due and payable. Insofar as the defence based on the subordination clause was concerned, reliance was placed on a judgment in an earlier liquidation application in which the appellant's application to wind-up the respondent was dismissed on the basis that the amount claimed under the subscription agreement was not due and payable as it was subordinated to other creditors to whom the respondent owed money. Therefore, the respondent argued that the issue as to whether or not any amounts were due and payable under the agreement were res judicata and could not be raised again in the present pleadings.

Held that in light of the subordination clause in the agreement, the appellant was a contingent creditor of the respondent in terms of section 346 of the Companies Act 61 of 1973. The appellant was accordingly well within its right to have applied, on that ground alone, for the winding-up of the respondent. Consequently, the court a quo erred in refusing to wind-up the respondent on the basis that the debt, specifically under the subscription agreement, was not as yet due and payable, because it had been subordinated to other creditors of the respondent.

Next, the Court addressed the issue of the respondent's liability to the appellant with regard to the loan agreement and the plea of prescription raised by the respondent. In June 2011, the appellant sent the respondent a letter of demand. The respondent replied with a settlement proposal, which the Court recognised as an unequivocal acknowledgement of indebtedness. The letter also confirmed that the respondent was unable to pay its debts and, was in consequence, commercially insolvent. Those unequivocal admissions of liability by the respondent were such that the plea of prescription could not be sustained because such admission would have interrupted the running of prescription.

The appeal was upheld with costs, and a liquidation order granted.

Mayo NO v De Montlehu  2016 (1) SA 36 (SCA) 11

Claim against company in liquidation — Proof — Late proof — Statutory framework — Time period stipulated in s 44(1) of Insolvency Act 24 of 1936 not affected by s 366(2) of Companies Act 61 of 1973 — Three-month period for lodging of claims applying to both sequestrations and liquidations.Statute — Interpretation — 'Mutatis mutandis' — Meaning 'subject to necessary alterations' — Necessary changes must be required, not merely permitted.

Mr De Montlehu argued that a claim against his company, which was being wound up, was wrongly allowed because the master admitted it to proof I some five months

11 Already discussed in December 2015 but now a reported case

after the second meeting of creditors. Mr De Montlehu relied on s 44(1) of the Insolvency Act 24 of 1936, which stipulated that a creditor who wishes to prove a claim more than three months after the second meeting of creditors had to obtain leave from the master, which was not obtained in the present case.The appellants (the company, its liquidators and the creditor in question) contended that the claim should stand because the matter was governed by s 366(2) of the Companies Act 61 of 1973, which gave the master a broad discretion to extend the time period for the proof of claims. (No time period had been set by the master in this case.)The appellants initially argued that Mr De Montlehu lacked locus standi because he was not a creditor of the company, but locus standi was later conceded (and correctly so, according to the SCA) on the ground that he was a 'person aggrieved' in terms of s 151 of the Insolvency Act.The Johannesburg High Court agreed with Mr De Montlehu and granted his B application for the setting-aside of the master's decision to allow the claim. In an appeal to the SCA the court analysed the effect of the words 'mutatis mutandis' in s 366(1)(a) of the Companies Act, which provided that claims against a company would be proved 'mutatis mutandis in accordance with the provisions relating to the proof of claims against an insolvent estate under the law relating to insolvency'.Held Since mutatis mutandis meant 'subject to the necessary alterations', the fixed time period provided for in s 44(1) of the Insolvency Act would not be pushed aside by s 366(2), which related to participation in a distribution and not late proof of claims. Hence the three-month period in s 44(1) applied to both sequestrations and liquidations. Appeal dismissed

Minnaar v Van Rooyen NO 2016 (1) SA 117 (SCA)12

Directors and officers — Liability for debts of company — Court cannot make prescribed finding of recklessness or intent to defraud without hearing evidence — Grant by default of order under s 424(1) of Companies Act 61 of 1973 not permitted.

A court cannot without hearing evidence make a finding under s 424(1) of the Companies Act 61 of 1973 that a director or officer is guilty of recklessness or intent to defraud, and hence liable for company debts. The grant by default of an order under s 424(1) is therefore erroneous within the meaning of rule 42(1)(a) of the Uniform Rules, and liable to be set aside. Mr Casper Minnaar, the appellant, appeals against the refusal to grant the rescission of an order made against him by default. The order was made by Van der Merwe DJP (in the North Gauteng High Court) in terms of s 424(1) of the Companies Act 61 of 1973, applicable at the time when the default judgment was sought. It read:

    'When it appears, whether it be in a winding-up, judicial management or otherwise, that any business of the company was or is being carried on recklessly or with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the Court may, on the application of the Master, the liquidator, the judicial manager, any creditor or member or contributory of the company, declare that any person who was knowingly a party to the carrying on of the business in the manner aforesaid, shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court may direct.'

12 Already discussed December 2015 now reported case

Default judgment, under s 424(1), was sought against Minnaar on 22 February 2012 by the then liquidator of a company, Askari Mining and Equipment Ltd (Askari), who had instituted action against Minnaar and four other former directors, on the basis that they had acted recklessly in the conduct of the affairs of the company and should thus be liable for all the debts of the company. The respondent, Mr AW van Rooyen, is the current liquidator of the company.

The only passage in the report of the enquiry that is in the record, and which deals with Minnaar's role, stated that he had testified about the 'main financial transactions of the company while he was its financial director. He contributed significantly to the establishment of the facts on the strength of which the main creditors of the company may be able to establish that the affairs of the company were conducted recklessly.' In May 2008 the liquidators indeed instituted action against the five directors, claiming an order that they be held personally liable for the debts of Askari. 

“In this matter, in my view, the liquidators were not entitled procedurally to default judgment against Minnaar without leading evidence. By its very nature, the right to the relief sought under s 424(1) of the Companies Act had to be proved on a balance of probabilities.  The liquidators were not entitled to rely on allegations made in the particulars of claim and denied in the defendants' joint plea. At the very least they should have led witnesses to show that the directors had acted recklessly or with intent to defraud creditors. The order in terms of s 424(1) was thus erroneously sought, and, as a result, erroneously granted. It must accordingly be rescinded in terms of rule 42(1)(a).There is thus no need to consider whether Minnaar's default was deliberate, such that he would not be entitled to relief under the common law. Van Rooyen argued, however, that when the application for rescission was brought, Minnaar was seeking the court's indulgence and  that he should not be entitled to the costs of the application. Moreover, his account of why he had not appeared in court on the trial date was not entirely credible or consistent. I agree, and consider that the costs of the application should be costs in the cause.”

Panamo Properties 103 (Pty) Limited v Land and Agricultural Development Bank of South Africa 2016 (1) SA 202 (SCA)13

Mortgage bond — Validity — May secure debt arising from enrichment claim.

The Land and Agricultural Development Bank of South Africa and Panamo Properties 103 (Pty) Ltd entered into an agreement in terms of which the Bank would lend Panamo money to buy land and to develop a township on it. They also concluded a mortgage over the property which was duly registered, which secured any of Panamo's debts, both existing and future, to the Bank. Thereafter the Bank advanced money to Panamo.Ultimately, the Bank sought a declaration that the agreement was void because it failed to comply with the Land and Agricultural Development Bank Act 15 of 2002 (the Act) and the Public Finance Management Act 1 of 1999 (the PFMA); and that the bond secured a claim for enrichment in respect of the money advanced. The High Court granted the orders sought, and the matter was appealed to the Supreme Court of Appeal.13 Already discussed December 2015

CJ Claassen J in the court a quo concluded that the bond was valid, despite the fact that the contract pursuant to which it was passed was not. The bond agreement, he said , was a separate agreement of hypothecation and its 'validity is not dependent upon the validity of the anterior transaction'. A mortgage bond is of course always accessory to an obligation, no matter its origin. If the obligation is unenforceable the security in respect of it is unenforceable too. That does not mean that a principal obligation must exist before a mortgage is entered into: it may be given as security for a future debt or as a covering bond. But when enforcement of the bond is sought it must be in respect of a valid obligation. And when determining whether an obligation is secured by a bond, one must have regard to its particular terms.

“The Bank says that it has a claim for unjust enrichment under one of the condictiones. No such finding can be made on this issue here. I assume, for the purposes of deciding the question, that such a claim is valid. An enrichment claim gives rise to indebtedness. I know of no reason why a mortgage bond cannot secure a debt arising from an enrichment claim. Indeed, no argument was advanced before us why a debt of that nature cannot be covered. The question is whether that kind of debt is secured by this particular bond.”“In the first place, the bond is a covering bond. A covering bond may provide security for more than one specific debt. The bond may therefore afford security for more than obligations arising under the loan. It is not necessarily extinguished merely because the loan is void. It complies with the formalities required by s 51 of the Deeds Registries Act for those covering future indebtedness. The nature of the bond thus does not exclude the possibility that an enrichment claim may be covered.”“In the preamble, the passing of the bond is said to have given expression to an undertaking. This undertaking was by Panamo to pass a 'continuous covering bond as security for [Panamo's] liability towards the Land Bank for whatsoever reason'. It therefore goes further than one to pass a bond to cover indebtedness under the loan and, indeed, under only some form of an agreement. It is stated in the broadest possible terms. The preamble therefore describes the circumstances under which the bond came into existence.”The first issue there was whether the agreement was valid. Held, that such a loan was not authorised by the Act (s 3 read with s 26(1) and (2)); and that the PFMA (ss 66 and 68) rendered the loan agreement invalid.The second issue was whether the bond secured a claim for enrichment. This could be determined by interpreting the bond's terms.Held, that, in principle, there was no reason why a mortgage bond would not secure a debt arising from an enrichment claim. Here, construing the bond as a whole, it secured such a claim. Appeal dismissed. 

Gap Merchant Recycling CC v Goal Reach Trading 55 CC 2016 (1) SA 261 (WCC) 

Winding-up — Application — Debt that is basis of application bona fide disputed on reasonable grounds — Rule that winding-up precluded in these circumstances — Nature and scope of rule — Meaning of 'bona fide' and 'disputed on reasonable grounds'. Winding-up — Application — Counterclaim that is bona fide and on reasonable grounds — Whether court has discretion to dismiss liquidation application.

The applicant applied for the provisional liquidation of the respondent, a close corporation. The basis of the application was a claim of R668 000 for goods sold and delivered. Respondent disputed the claim and invoked the rule that winding-up proceedings are precluded, where the debt that is their basis is bona fide disputed on reasonable grounds. Held, that the precise nature of the rule — whether it went to the applicant's locus standi or was a self-standing principle — was not settled; nor was the question of its flexibility — whether it applied in all instances where a bona fide dispute on reasonable grounds was shown, or only when in addition the application for winding-up was shown to be an abuse of process. If the latter were the case a further question was raised of whether the respondent had to show that at the time the application was launched the applicant knew the debt was bona fide disputed on reasonable grounds; or whether it would suffice for the dispute to emerge for the first time in the answering papers. For present purposes, though, the court would adopt the approach that if on an assessment of all the affidavits the claim was bona fide disputed on reasonable grounds; it would have to dismiss the application. As for the meaning of 'bona fide disputed on reasonable grounds', held that 'bona fides' related to the respondent's subjective state of mind — that he believed his factual statements to be true; while 'disputed on reasonable grounds' required that objectively the defence raised be supported by the facts alleged. Bald allegations lacking in particularity would not satisfy the requirement, and might even indicate that the respondent was not bona fide. The respondent also raised a counterclaim for damages. Here again the law was unsettled. On one approach, the court had discretion to dismiss a liquidation application that was countered by a bona fide claim on reasonable grounds for damages. (The counterclaim would have to at least match or exceed the claim.) On a rival approach the liquidation application would have to be refused. (The latter position applied, though, only to liquidated counterclaims — an unliquidated counterclaim would merely be a basis for the court to exercise its discretion against granting a liquidation order.) The court ultimately adopted the position — without deciding — that it would have to dismiss the application if the counterclaim was bona fide and on reasonable grounds, and exceeded the applicant's claim. On examining the facts, though, the court concluded that the respondent had not on bona fide and reasonable grounds either disputed the applicant's claim or asserted a counterclaim for damages; and it was prima facie unable to pay its debts as they fell due. There were moreover no grounds to exercise the discretion to refuse a provisional liquidation order. It consequently ordered that the respondent be placed in provisional liquidation.

Werksmans Incorporated v Praxley Corporate Solutions (Pty) Limited[2016] JOL 34039 (GJ)

Winding up application- untaxed bill can be used-

Winding up order-discretionary power irrespective of the ground upon which the order is made.

Winding up-order declaring winding up proceedings as being vexatious and frivolous and thus amounting to an abuse of the court’s procedure is discretionary.

In terms of a verbal agreement, the respondent and the applicant law firm entered into an agreement in terms of which the applicant received instructions concerning arbitration proceedings between the respondent and a third party (ODM).

In October 2012, the respondent received a notice from ODM to the effect that its board of directors had passed a resolution to place ODM under business rescue in terms of section 129 of the Companies Act 71 of 2008. That would by law result in the staying or suspension of all legal proceedings against ODM in terms of the provisions of section 133 of the Act. The respondent did not instruct its attorneys the applicants to stop arbitration proceedings but it was agreed to await the appointment of a business rescue practitioner and only then stop the arbitration. A business rescue practitioner was appointed on 7 November 2012 thus causing the suspension or staying of the arbitration proceedings. At the end of November, the relevant attorney in the applicant firm sent his invoice to the applicant, claiming fees due to him for the period 1 November 2012 to 19 November 2012. The respondent continued to pay the applicant’s invoices up until October 2012, but in February 2013, it cancelled the respondent’s mandate to act for it. That led to the respondent sending a letter of demand for the balance owing (in respect of counsel’s fees). A deadlock was reached solely on the insistence by the respondent that the applicant tax his whole fees past paid and present.

Held that the issues before the Court were whether a party is entitled to demand that fees and disbursements that had already been paid by it to its attorneys be subjected to taxation by the taxing master; and whether there is justification to proceed with liquidation proceedings against a client who withholds payment because of a dispute in respect of the fees and disbursements of counsel.

The Court upheld the applicant’s argument that it should not be compelled to tax bills that had already been paid. The Court was unpersuaded that the respondent had made out any case to compel the applicants to submit their paid invoices for taxation.

The next question was whether the applicant was justified in launching liquidation proceedings, or whether it was an abuse of the legal process. The respondent pointed out that it had already paid in excess of R1 million in fees and disbursements to the applicant and there was accordingly no reason to believe that respondent would not be able to pay the sum claimed. The question to be answered firstly was whether an untaxed bill can be used to sue thereon or not. The court’s power to grant a winding up order is a discretionary power irrespective of the ground upon which the order is made. Similarly, the granting of an order declaring winding up proceedings as being vexatious and frivolous and thus amounting to an abuse of the court’s procedure is discretionary. The discretion must be exercised on judicial grounds. The Court found that the dispute raised by the respondent regarding the amount claimed was not genuine. The Court was also not persuaded that in launching the liquidation proceedings, the applicant acted maliciously or vexatiously.

The respondent was ordered to pay the amount claimed by the applicant.

Stalcor (Pty) Ltd v Kritzinger NO and Others (1841/2012) [2016] ZAFSHC 6 (21 January 2016)

Business rescue-variation of proved claim-tantamount to variation of plan-claimant received payments -delay to object

The applicant applies to have the value of its claim as currently reflected in the business rescue plan increased, the business rescue practitioner directed to investigate certain business affairs of the financially distressed enterprise and the respondents directed to pay the costs on a punitive scale.  The respondents resist the grant of such an order.

The undisputed facts need to be captured.  The applicant supplied certain goods to the second respondent on credit.  The second respondent failed to pay the debt. 

A resolution was adopted by the third respondent whereby the current second respondent was placed under business rescue scheme and the current first respondent was appointed as the business rescue practitioner of the second respondent.  The business rescue proceedings effectively commenced on 22 February 2013.  The first meeting of creditors was held in Bloemfontein on 11 March 2013.  After his appointment, the practitioner had various communiqués with the applicant’s attorney, Mr R C Christie and the applicant’s directors.  At one stage, on 11 April 2013 to be precise, the practitioner travelled to Germiston to have an exclusive meeting with the applicant’s representatives.  During that special visit the applicant’s capital claim of R2 666 482,29 was tabled and discussed.

The practitioner then convened the second meeting of the second respondent’s creditors in terms of section 151 of the Companies Act, 71 of 2008.  The meeting was held in Bloemfontein on 21 June 2013.  All in all nine creditors attended the meeting.  Among them was a certain Mr H B Steyn who attended the meeting as the applicant’s proxy. During the second meeting the creditors were afforded the opportunity of updating their claims.  On behalf of the applicant, Mr Steyn recorded the applicant’s claim as R2 666 482,00.  The figure represented the capital only.  The accrued interest and the taxed costs in terms of the court orders were not included.  Besides, there was no reference to interest and costs on the ballot paper. )

The practitioner went ahead during the second meeting to prepare a business rescue plan.  In due course he distributed the approved business rescue plan among the creditors.  The applicant’s name was on the distribution list.  The business rescue plan set out the value of each creditor’s claim.  The practitioner copied the applicant’s attorney as well as the applicant’s directors.  He received no objection concerning the value of the applicant’s claim which was recognised and recorded as R2 666 482,00.  No variation of the business rescue plan was subsequently requested by or on behalf of the applicant.  At the creditors second meeting held in Bloemfontein on 21 June 2013 the business rescue plan was approved by the majority.

On 28 August 2014, at the very earliest it would appear, interest due to the applicant by the second respondent was calculated in accordance with the two court orders.  The total interest which accrued from the two applications was the sum of R622 513,65.

The applicant’s three bills of costs were drawn up and presented for taxation on 20 March 2013, 23 April 2014 and 9 May 2014.  The total sum of the three taxed bills of costs was R442 594,94.

The real purpose of the current application is to have the applicant’s claim recorded as R2 66   482,00 increased by R1   065   108,62, being interest in the sum of R622   513,68 plus costs in the sum of R442   594,94, to the total of R3   731   590,62.   The increased portion thereof represents a ±40% shortfall.  The applicants bemoaned that its recorded and recognised claim had been substantially understated and that the enormous deficit would have a materially adverse impact on the real quantum of its claim.  For those reasons the applicant seeks rectification of its understated claim as recorded in the business rescue plan by the first respondent, in other words the business rescue practitioner.  This is the first relief sought.

The second respondent, a business corporate enterprise in rescue proceedings had eight other creditors besides the applicant.  Those creditors and holders of the securities issued by the second respondent were all parties to the business rescue plan.  These proceedings were initiated on 12 May 2015.  The applicants caused the current application to be served on them.  Although there were, in that way, given notice of this application none of them was cited as a correspondent

In this matter the applicant basically applied to have the existing business rescue plan varied in order to include the amounts of interests and the amounts of costs previously awarded to the applicant in terms of court orders.  Yet the very business rescue plan was not even attached to the applicant’s papers.  Therefore, I was asked to vary a document that I had not even seen.  Moreover, the applicant tendered no explanation whatsoever in its founding affidavit as to why its claim as ultimately recorded in the business rescue plan did not include such interest and costs at the crucial time, being 21 June 2013, when the creditor’s claims in the business rescue plan were finally revised or updated and finally approved.  Once approved the business rescue plan binds every creditor – sec 152(4).

The applicant’s first and even second deponent did not given any material facts to substantiate the applicant’s belated excuse for the considerable delays in having its bills drawn up, presented and taxed before the business rescue plan was finally approved by the creditors.

In the instant matter the business rescue plan was approved by the stakeholders in the presence of the applicant.  There was no objection.  It was subsequently sent to the applicant.  There was no objection.  The applicant’s attorney was copied.  There was no objection.  Almost 8 weeks after the approval of the business rescue plan the applicant complained to the business rescue practitioner that its claim in the business rescue plan was not correctly calculated because interest and costs were not taken into account. 

The applicant received14 payments distributed in accordance with the business rescue plan from 7 March 2013 until 28 August 2014.

On 10 November 2015, some 28.5 months since the final approval of the business rescue plan and some 25.5 months since the dispute was declared, the applicant rushed to court.  I pause to make an obvious comment.  The applicant’s conduct in relation to this matter was characterised by endless acts of remissness.  This is yet another, example thereof.  Worse still none of the second respondent’s creditors were cited as co-respondents, their direct and substantial interest notwithstanding.  That too was a material omission.

Now I turn to the second relief, prayer 2 of the notice of motion.  The prayer has its origin from two paragraphs in the founding affidavit.  Those were paragraphs 18 and 19.  The applicant, so it seemed to me, suspects that before the business rescue proceedings started the second respondent and third respondent had committed certain voidable transactions or engaged themselves in reckless trading or committed material breach of certain contractual obligations.  Based on that suspicion the applicant applies for an order in terms of section 141(2)(c) of the Companies Act, no 71 of 2008 whereby the first respondent as the business rescue practitioner is directed to investigate the activities of the close corporation and its member, and to file a report within 6 months with the registrar – vide paras 18 and 19, founding affidavit.

In the light of all these material considerations I am satisfied that it had not been shown that there was cause to be concerned; that there is no reason to believe that the applicant’s suspicion was well founded; that the proposed further investigation is likely to reveal any foul play by the suspected respondents and that the first respondent had not properly complied with his obligations in terms of section 141.  In any event section 141(2)(c) does not countenance the type of relief sought by the applicant.  I would, therefore, also deny the relief. 

In appropriate cases there is a constitutional imperative that a high court should develop common law.  However, before a judge can embark upon such an exercise a party calling upon the court to do so has demonstrate there are facta nova and lacuna in existing law.  This is important because common law cannot be developed in a vacuum.  Accordingly I decline the invitation extended to me by the applicants to develop common law by extending the scope of section 141(2)(c).

The applicant’s conduct was characterised by a series of acts of omissions.  The applicant flagrantly breached the rules and practice directives of the court.  In the circumstances, I am inclined to award all the costs in favour of the respondents.  To ensure that the respondents are not put out of pocket as a result of the applicant’s failings, I believe that it is appropriate and just to award the costs on the special scale as between attorney and client in favour of the respondents.  I cannot demonstrate my displeasure strongly enough.

Accordingly I make the following order: 63.1  The application is dismissed.

63.2  The costs of this application including all the wasted costs occasioned by the postponements shall be borne and paid by the applicant.

63.3  The respondents are entitled to have their costs taxed on the special scale as between attorney and client.

Noordman N.O. and Another v Bruin (3635/2013) [2016] ZAFSHC 9 (29 January 2016)

Directors-s 424 of the Companies Act, 61 of 1973- reckless and/or fraudulent conduct in respect of a company’s business

The liquidators of an insolvent company and the sole shareholder and former director of that company are at loggerheads.  The manner in which the insolvent company carried on its business is the centre of attraction in so far as the liquidators

believe that its former director should be held liable in his personal capacity for the insolvent company’s debts.

Messrs O A Noordman and S M Rampoporo, the two liquidators of Elysium Graanbemarking (Pty) Ltd (2000/006848/07) (in liquidation), (herein later referred to as “the insolvent company”), are the plaintiffs.   Mr Jopie Fourie Beyers De Bruin, the sole shareholder and former director of the insolvent company, is the defendant.  Plaintiffs seek an order in terms whereof defendant is declared personally liable for payment of the total debts of the insolvent company in the amount of R2 952 836.37 plus interest a tempore morae and costs.  The claim is based on s 424 of the Companies Act, 61 of 1973 (“the Old Companies Act”), which deals with the liability of directors and others for reckless and/or fraudulent conduct in respect of a company’s business.  In terms of this section a court may, on application of inter alia the liquidator of a company, declare that any person who was knowingly a party to the carrying on of the business of the company, recklessly, or with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct.

[5] In their particulars of claim plaintiffs rely on sixteen grounds in support of the averment that defendant shall be personally held liable.  I do not intend to quote those grounds now, but shall deal with the more pertinent grounds which were raised in the evidence.

Feedex Exchange (Pty) Ltd (“Feedex”) trades as a grain merchant, conducting its business inter alia in the Free State Province. Feedex has been doing business with an entity known as Elysium Graanbemarking (“Elysium”) since about 2002.  Defendant was Elysium’s contact person and for all intents and purposes effectively in control of Elysium. Elysium, or the insolvent company as contended by defendant, also acted as grain merchant and particularly in the Koppies district, Free State Province.  Defendant was at relevant times a farmer and grain producer who conducted his business in the Koppies district. 

Ex facie documentary evidence placed before me, and following the trend of previous years,  several contracts were entered into between Feedex and Elysium during 2005 in respect of the 2005/2006 sunflower harvest season.  In terms hereof Feedex purchased grain from Elysium in respect of sunflower crops still to be planted by various farmers (“producers”).    

When entering into the various contracts Feedex knew at all relevant times that Elysium had entered into back to back agreements with producers in the Koppies district in order to be able to sell and deliver grain to Feedex.  In each case the parties recorded that the grain sold by Elysium to Feedex had been purchased from a particular producer.  Defendant as representative of Elysium signed the contracts as producer (“produsent”), which is clearly not correct as Elysium acted as grain merchant.

The identities of all producers in respect of all contracts entered into between Feedex and Elysium were therefore known to Feedex and duly recorded in writing. 

The business of a grain merchant (and farming in general) is risky as many risk factors such as droughts, hail, excessive rainfall and several other factors have an impact on production of grain.

It is clear from the evidence that Feedex was at all relevant times fully aware of the identity of the producers with whom Elysium concluded back to back contracts.  There was no recklessness or intention to defraud or fraudulent purpose in the manner in which defendant conducted its business.  The attitude and actions of defendant since January, but particularly during May and June 2006 were criticized by Mr Zietsman and these should be considered more closely.  It must be pointed out that plaintiffs failed to rely in their particulars of claim on such conduct, in particular the failure to deliver grain, as a ground for liability in terms of s 424(1). 

Mr Zietsman also submitted that defendant’s fraudulent action is evident from the fact that he elected to issue summons (on behalf of his company) against the producers Oosthuizen and Loggenberg, but that no action was taken against others who failed to deliver, including himself and his son.  Defendant was thereafter the driving force of the litigation between his company and Feedex over a period of years, only to surrender eventually and thereafter to apply for his company’s winding-up.

I do not accept that the litigation instituted can be labelled as fruitless and that defendant acted fraudulently.  His company had a liquid claim while Feedex’ claim for damages was illiquid.  The mere fact that legal costs have been incurred is a necessary consequence of litigation.  It appears from defendant’s interrogation that his company carried on with business during at least 2007.  An amount of in excess of R1.5M was received during this year from Tiger Brands in respect of maize contracts which were entered into on the same basis as in casu.  However various producers, including defendant personally, had to be paid and expenses settled if the cheques relied upon by plaintiffs are considered.  The investigation was not continued and it is uncertain what was due to the company.  Mr Zietsman did not labour this issue at all during argument.  The receipt of payments by either defendant or his company’s attorney has been dealt with in the plea and no evidence pointing to action within the ambit of s 424(1) has been led.  It was alleged that payments had been made from the insolvent company’s cheque account towards university expenses of defendant’s daughter, but it has not been proven when these payments were made and that defendant was not entitled at the time to authorise these.  This aspect was also not argued on behalf of plaintiffs.  The further allegations that defendant used his company as a conduit and that he failed to differentiate between the legal persona of his company and himself have not been addressed in evidence or arguments.  It is apparent from the contracts entered into that Feedex should have been well aware that defendant and his son entered into contracts under their own names, distinct from the name Elysium Graanbemarking.  These allegations are without merit.  The same applies to those not specifically mentioned herein.

In my view defendant did not act recklessly, fraudulently or with the intention to defraud creditors, and Feedex in particular, although there can be no doubt that his company failed to comply with its contractual obligations.  The plaintiffs failed to bring their claim within the ambit of s 424 (1) of the Old Companies Act and therefore the action should be dismissed.

Stander v Van den Berg (60296/2013) [2016] ZAGPPHC 7 (21 January 2016)

This is an application by the applicant for the sequestration of the respon- dent's estate. The application was served inter alia publishing the applica- tion in the Citizen newspaper and Pretoria News newspaper in terms of a court order granted on 28 May 2014. See p 77 and p 80.

[2] The matter was heard on 17 November 2015, and I reserved judgment because I only received the matter the previous day due to the Judge who was allocated to hear the matter became ill on the 16th.

[3] The basis for the application by the applicant is that he avers that the re spondent is factually insolvent and unable to pay his debts. The applicant's claim against the respondent is based on an settlement agreement between the parties made an order by this court on 9 November 2012. See annexure "CS-2" on p 26. The amount due to the applicant by the respondent in terms of the settlement agreement is R 937 000,00.

[4] The applicant now alleges that the respondent has failed to make any pay ment in terms of the court order.

[5] The applicant attempted execution against the respondent without any result. For purposes of this judgment I deem it not necessary to repeat the alleged attempts as averred in par 6 on p 13 to 19 of the founding affidavit.

[6] The respondent admits the settlement and subsequent court order, but avers that he was then in the process of listing a company, the result of the listing would have resulted in him to settle the judgment debt. See par 8 on p 100.

[7] It is therefore clear that the respondent admits being indebted to the appli cant.

[8] The respondent however denies that any execution attempts ever came to his notice as he does not know how and where the applicant obtained the various addresses where execution was attempted. See par 8 on p 100.

[9] The court derives its jurisdiction in matters of kind due to the provisions of section 149 of the Insolvency Act, Act 24 of 1936 as amended, hereafter referred to as the "act".

[10] The provisions of section 149 is the following:

" (1) The court shall have jurisdiction under this Act over every debtor and in regard to the estate of every debtor who-

(a) on the date on which a petition for the acceptance of the surrender orfor the sequestration of his estate is lodged with the registrar of the court, is domiciled or owns or is entitled to property situate within thejurisdiction of the court; or

(b) At any time within twelve months immediately preceding the lodging of the petition ordinarily resided or carried business within thejurisdiction of the court;...

[11] The question to answer is whether the respondent falls within the wording of section 149 at the time of the lodging of the application by the applicant for the sequestration of the estate of the respondent. The application was first date stamped by the office of the Registrar of this court on 17 September 2013. Service could not

be effected in the normal way as the respondent was no longer at any of the then known addresses. Service by publication was ordered as per court order on p 75 and 77, the last dated 28 May 2014.

[12] One of the provisions of the court order dated 19 November 2013 was, in par 1.3 thereof, that "a complete copy of the sequestration application, in cluding all annexures thereto, be scanned and dispatched via e-mail to the respondent 's e-mail address    From the contents of p 82 can be accepted that the application was e-mailed to the respondent on 18 August 2014. The respondent filed a notice of intention to defend on 19 August 2014, the reasonable inference that he received and accepted such service. See p 85.

[13] The 12 months referred to in section 149 of the Act determining the juris- diction of the court in sequestration proceedings for the lodging of the peti tion can only be calculated with reference to when the petition, now appli cation, was served on the respondent. In terms of the provisions of The Petition Proceedings Replacement Act 35 of 1976 in section 1, the only possible meaning can be that any reference in any law to the institution of application proceedings in any court by petition, shall be construed to be the Institution of such proceedings by notice of motion in terms of the Rules. Rule 6(2) of the Uniform Rules of Court requires proper notice of such application to be addressed to both the registrar and the other person in volved to be proper service.

[13] If this service is accepted as the date of service on the respondent, the cal culation of the 12 month period required in section 149 of the Act would have commenced on 18 August 2013 ( 12 months prior to the service by way of e-mail on 18 August 2014 ).

[14] The Windeed search annexed by the applicant as annexure "CSR-1" on p 124 & 125, on p 125 indicates a certain Robbertze W C to be the owner of the property in Erasmuskloof during 2013. It is therefore possible that the respondent was no longer the owner of the said property during 2013, the 12 months preceding the service of the application as set out above. On this ground it is therefore not possible to find that this court has jurisdiction to hear the application.

[15] Section 149 however vests this court with jurisdiction in those instances where the debtor was carrying on business within the jurisdiction of the court at the date of the lodging of the application or at any time within twelve months preceding the lodging of the application.

[16] Sufficient facts should be stated in the application to show that the court has jurisdiction by the applicant. The onus is on the applicant to prove prima facie that the respondent was ordinarily carrying on business within the court's jurisdiction. Should the respondent challenge the prima facie evi dence alleged by the applicant, the burden is then on the respondent to prove the contrary. See Mars, The Law of Insolvency in South Africa, Juta1988 on p 17.

[17] The respondent, although he avers to be unemployed, also mentions that he, likewise when the settlement agreement was entered into, is busy with the listing of a company named Decision Limited. See par 7 on p 99.

On p 101 in par 8.2 the respondent indicates that the listing is still in progress and soon to be completed. The annexure "B" on p 105 refers to a company named Decillion Limited, to be renamed Ardor SA Limited.

[18] It is important to note that the settlement agreement was signed on 8 November 2012. See copy of the agreement on p 28-29. The opposing affidavit was signed on 28 October 2014, almost two years after the settlement agreement was signed.

[19] The only reasonable inference from the above is that the respondent is on an ongoing basis busy with the listing of the company for almost two years.

[20] Section 149 of the Act vests a court with jurisdiction inter alia where a debtor is carrying on business within the jurisdiction of the court within twelve months preceding the lodging of the application.  It is not necessary that the carrying on of the business was for the full extend of the twelve months, it is enough if he has he done so during such period. See Mars, supra on p 17.

[21] The above almost two years of involvement by the respondent to list the company in my view can only be regarded to be carrying on businesswithin the jurisdiction of this court. The respondent is not casually involved in the listing but devoting substantial time to this activity, thereby vesting this court with jurisdiction in terms of section 149 of the Act.

[22] In his e-mail dated 4 January 2013 ( annexure "CS-15" on p 49 ), clearly states that he will be back in Pretoria soon still involved in the listing of the company. In my view it is reasonable to infer that the respondent, although "unemployed" ,  is occupied with the listing of the company. This activity, on his own version, takes place within the jurisdiction of this court. He may be residing in Cape Town, but nothing precludes him to be ordinarily carry ing on business in Pretoria- as he on his own accord will be back in Pretoria within a week.

[23] In the Windeed search on p 55 the respondent is listed as an active director of at least 10 listed companies with registered addresses in Gauteng within the jurisdiction of this court. The reasonable inference to be drawn from this is that the respondent was ordinarily carrying on business within the jurisdiction of this court within the twelve months preceding the lodging, and service of the application on 18 August 2014.

[25] I am satisfied that the respondent's ongoing involvement in the listing of the company is not a once of involvement, similar to "ordinary residence" in Phillips v Commissioner of Child Welfare, Bellville 1956(2) SA 330 (C), but something more prolonged than a temporary carrying on of business.

[26] The next question to be answered is whether it will be to the advantage of creditors should the estate of the respondent be sequestrated? 'Creditors' means all or at least the general body of creditors. The applicant in the founding affidavit in par 7 listed several other creditors of the respondent known to the applicant. It is difficult for a creditor to obtain full knowledge of the debtor's financial affairs, but from the information listed it is clear that the respondent indeed has other creditors.

[27] The respondent however chose not to be frank with the court but chose to have the court believe that he is unemployed. This is with respect not true. The respondent on his own version is ongoing involved in the listing of a company for an extended time of two years. He is actively involved in other companies but failed to inform the court to what extend his involvement is. He merely brushes the allegations aside in the opposing affidavit but fails to annex any prove of alleged deregistration of the involved companies or that the companies are dormant. He in one sentence in par 8.6 on p 102 merely denies any advantage to creditors. The

respondent, in view of the proven allegations by the applicant, had to prove the contrary. See Mars, supra p 17.

[28] I am satisfied that the facts placed before the court is sufficient to have reason to believe that the sequestration will benefit the creditors, that some pecuniary benefit will result to the creditors. See Meskin & Company v Friedman 1948(2) SA 555 (W) at 588; Amod v Kahn 1947(1)SA 150 (N); BP Southern Africa (Pty) Ltd v Furstenburg 1966(1) SA 717 (0) on 720. Also see Hockley's Law of Insolvency, 6th ed 31-33.

[29] There has been compliance with the required formalities as to service on the Master's Office and on The South African Revenue Service. See p 4. The necessary security was tendered as per certificate on p 72.

[30] I am satisfied that the applicant has made out a case for the relief sought in the notice of motion and the following order is made:

30.1. The estate of the Respondent is placed under provisional sequestration;

30.2. The respondent and any other party who wishes to avoid such order being made final are called upon to advance the reasons, if any, why the court should not grant a final order of sequestration of the said estate on the 22 February 2016 at 10:00 or as soon thereafter as the matter may be heard.

30.3. This order be published in the Government Gazette; and Citizen

30.4. That the costs of the application be costs in the sequestration.

 

City of Tshwane Metropolitan Municipality v PJ Mitchell (38/2015) [2016] ZASCA 1 (29 January 2016)

The Supreme Court of Appeal (SCA) handed down judgment upholding the appeal by the appellant and substituting the order of the order of the court below.

The issue before the SCA was whether a municipality could hold a successor in title, in respect of property, liable for an unpaid debt incurred by a previous owner for municipal services supplied prior to transfer and the interpretation of s 118(3) of the Local Government: Municipal Systems Act, 32 of 2000 (the Act).

The respondent purchased the fixed property known as Erf 296, Wonderboom Township, Gauteng (the property), at a sale in execution. The property was situated within the appellant’s municipal boundaries. When the respondent applied for a clearance certificate, the appellant (the Municipality) issued a ‘written statement’ reflecting a total amount of R232 828.25 as being outstanding in respect of municipal service fees, levies and rates. That amount included debts older than two years preceding the date of the application for a clearance certificate (historical debt).

The respondent disputed the correctness of the amount reflected in the ‘written statement’ as being payable for purposes of obtaining a clearance certificate in terms of s 118(1) of the Act. The dispute was, however, settled and the Municipality issued a certificate reflecting the outstanding amount due to it as R126 608.50, which represented only the debt due for the two years preceding the date of the

respondent’s application for issue of the certificate. The respondent paid that amount, leaving the historical debt of R106 219.75 still outstanding, due and payable if it had not become prescribed. According to the Municipality, this historical debt was a charge on the land (a hypothec ) in its favour and was due to it for rates, taxes and services, in terms of s118(3) of the Act.

The respondent subsequently sold the property to Ms Lynette Prinsloo (Prinsloo) who, before taking transfer, applied to the Municipality for the supply of municipal services such as electricity, waste removal and water to the property. A municipal official refused to open an account in her name until the historical debt was paid. Prinsloo then instructed her attorney not to proceed with the transfer until the issue of the historical debt had been resolved. The respondent then approached the Gauteng Division of the High Court, Pretoria, seeking, among others, an order declaring that he was not liable for the historical debt owed to the appellant by previous owners.

The court below relied on an exception created by the common law and held that the security that the Municipality held over the property in terms of s118(3) of the Act the Municipality’s had been extinguished by the sale in the execution and subsequent transfer of the property. The court below distinguished the present matter from this court’s decision in City of Tshwane Metropolitan Municipality v Mathabathe & another 2013 (4) SA 319 (SCA) on the basis that in that case the property was sold, not at a sale in execution, but by public auction on behalf of the mortgagor.

Writing for the majority, Baartman AJA ((Mpati P, Bosielo and Saldulker JJA concurring) (the majority) upheld the appeal. The majority found that the distinction drawn by the court below between the present matter and Mathabathe was not justified, and that the court below’s further reliance on the exception created by the common law in relation to sales in execution of hypothecated immovable property was also misplaced, as s118(3) of the Act created a statutory hypothec, and not a hypothec created by agreement in terms of the common law. The court accordingly disagreed with the respondent’s submission that s 118(3) of the Act should be interpreted in accordance with the common law relating to the effect of a sale in execution on the rights of bondholders, and held that it is clear that it was not intended that there be a distinction drawn between property sold at a sale in execution or in a private sale when considering the question whether the hypothec created by s 118(3) survives transfer.

The majority further stated that there was nothing preventing the appellant from perfecting its security over the property, should it wish to do so, to ensure payment of the historical debt. Perfecting its security would involve obtaining a court order, selling the property in execution and applying the proceeds to pay off the outstanding historical debt.

On the question whether Ms Prinsloo could be held liable for the historical debt, it was held that this issue was the SCA, but made the observation that before the Municipality can look to an owner for payment, it has to comply with its own by-law: it has to show that (1) there is no occupier on the property concerned and (2) the person who had entered into the contract to receive the services cannot be traced or has absconded, is unable to pay, or does not exist.

The majority therefore concluded that the court below should not have granted the orders which it did and the respondent’s application should have been dismissed.

Writing a dissenting judgment, Zondi JA held that s 118(3) must be interpreted in a sensible manner that is harmonious with the common law and does not undermine the purpose for which it was enacted, which is to provide a mechanism for municipalities to collect historical debts, and that there is no indication that the subsection was enacted with the intention to alter the common law. Accordingly, he held, the security created by the subsection does not survive a sale in execution, rather it is the proceeds of sale that secures the payment of outstanding municipal debts, and the municipality must be paid in full before any mortgagee is paid its debts, provided that they have not become prescribed, He further held that i f it had been intended that the security created by s 118(3) should continue to exist even beyond its sale in execution, the legislature would have used precise and definite language to give effect to that intention, and the fact that no such language occurs in s 118(3) is a strong argument in favour of the view that the common law rights of the owners – to obtain a clean title – who obtains transfer of the burdened property through a sale in execution were not taken away. In my view this is a sensible meaning of s 118(3). He concluded that he would have dismissed the appeal.

Harris v Fairhaven Country Estate (Pty) Limited (9357/2015) [2016] ZAWCHC 4 (26 January 2016)

Rehabilitation application-intervening creditor-intervenes for personal reasons-vendetta-turned down

Interrogation-purposes-not revenge

Master’s report-criticized

On 2 June 2010 the estate of the applicant (“Harris”) was sequestrated by order of this court. The amended first and final liquidation and distribution account in respect of his estate was confirmed by the Master on 22 November 2012.

On 10 April 2015 Harris gave notice in the Government Gazette of his intention to apply for his rehabilitation in this court on 2 June 2015. In this application Harris complied with the relevant statutory requirements of the Insolvency Act, 24 of 1936 (“the Act”) insofar as notice and time limits are concerned. The application for rehabilitation was brought pursuant to the provisions of section 124 (2) of the Act, in light of the fact that at the time that the application was launched more than 12 months had elapsed after the date of the confirmation of the liquidation and distribution account. In her report the Master noted certain shortcomings in the application to which I shall refer later but otherwise indicated that she would abide the decision of the court.

On Friday 29 May 2015 the intervening party (“Fairhaven”) gave notice that it intended making making application the following Tuesday (2 June 2015) for leave to intervene in the rehabilitation application for purposes of procuring the dismissal of such application, alternatively for the postponement of the rehabilitation application

pending the completion of an envisaged enquiry in terms of section 152 (2) of the Act, which enquiry was to take place within three months of the Master authorising same. It bears mention that the founding papers in the application to intervene are substantial and run to 182 pages.

The application to intervene was opposed and on 2 June 2015 was postponed, together with the rehabilitation application, for hearing before this court on 17 August 2015 with a timetable fixed for the filing of further papers.

An application for leave to intervene is not a prerequisite to a party being heard in opposition to an application for rehabilitation. In terms of section 127 of the Act, at the hearing of the application -

“the trustee or any creditor or other person interested in the estate of the applicant may appear in person or by counsel to oppose the grant of the application.”

Nevertheless Fairhaven considered it prudent to apply for leave to intervene on the grounds that it is a creditor in the insolvent estate whose debt has not been satisfied in full. Just how Fairhaven acquired its claim against Harris involves a fairly detailed account of the disintegration of a previously successful business relationship. If it be stated at this stage that Fairhaven was not a creditor in the insolvent estate, did not participate in the concursus creditorum and only purchased a claim from Nedbank Limited on the eve of the launching of the application to intervene (28 May 2015), it will be appreciated that Fairhaven’s intervention appears prima facie  to be out of the ordinary.

Harris claims that Fairhaven is not acting bona fide and that its application to intervene and oppose his rehabilitation is an abuse of the process of the court. Fairhaven on the other hand alleges that Harris has conducted a successful estate agency business and has effectively secreted assets acquired through his employment as such in a family trust. It further disputes the integrity of the allegations made by Harris in the founding affidavit regarding his income and asset base and suggests that he is not entitled to be rehabilitated. At the very least, Fairhaven says that Harris and others should be interrogated in terms of section 152(2) of the Act before consideration can be given to his rehabilitation. Allegations of this nature necessitate careful consideration of the extensive background detail relevant to this case.

The commercial relationship between the parties to this dispute and the other drammatis personae is a fairly complex web of contractual arrangements. The nature thereof is not particularly material to the resolution of the dispute and I shall accordingly deal with it as briefly as possible. The commercial setting is the sale of units in various residential developments in the Somerset West area.

[46] Argument commenced before this court on Monday 17 August 2015, the compulsory practice note having indicated that the matter was not likely to last longer than a day. Counsel for Harris completed his address shortly after the morning tea break on the Monday. By the close of proceedings on the first day counsel for the intervening party was still busy with his address and the matter continued the following day. Senior counsel for Harris asked to be excused at that stage and junior

counsel continued to represent Harris until the conclusion of the matter. By the close of proceedings on the second day counsel for the Fairhaven interests had still not completed his address and the matter was postponed to a date to be fixed later in Chambers in consultation with the parties. Ultimately an order was made by agreement in Chambers on 1st September 2015 that argument should be completed on Friday, 16 October 2015.

[47] The application to the Master for the section 152 (2) enquiry was convened for hearing before the magistrate, Somerset West on 26 September 2015. During argument in August 2015, counsel for Fairhaven indicated that the enquiry would be held in abeyance until this court had finally determined the application to intervene.

[50] The real issue in this matter is whether Fairhaven has availed itself of that right for a bona fide purpose. It is argued on behalf of Harris that where a party such as Fairhaven exercises that right for an ulterior purpose, and this amounts to an abuse of the process of the court, a court may exercise its inherent jurisdiction to protect itself and other litigants (such as Harris) from the abuse of its process. Indeed, it is the duty of a court to step in and prevent such abuse. Just what constitutes abuse will be determined by the particular facts and circumstances of each case, but generally speaking,

‘an abuse of process takes place where the procedures permitted by the Rules of Court to facilitate the pursuit of the truth are used for a purpose extraneous to that object.

[51] In National Potato Co-Operative [10]   the Supreme Court of Appeal was called upon to determine whether litigation pursuant to an alleged champertous agreement amounted to an abuse of process. Southwood AJA described the factors to be considered as follows –

“In general, legal process is used properly when it is invoked for the vindication of rights or the enforcement of just claims and it is abused when it is diverted from its true course so as to serve extortion or oppression; or to exert pressure so as to achieve an improper end. The mere application of a particular court procedure for a purpose other than that for which it was primarily intended is typical, but not complete proof, of mala fides. In order to prove mala fides a further inference that an improper result was intended is required. Such an application of a court procedure (for a purpose other than that for which it was primarily intended) is therefore a characteristic, rather than a definition, of  mala fides.  Purpose or motive, even a mischievous or malicious motive, is not in general a criterion for unlawfulness or invalidity. An improper motive may, however, be a factor where the abuse of the court process is in issue. (Brummer v Gorfil Brothers Investments (Pty) Ltd en andere[1999(3) SA 389 (SCA)] at 412I-J;414I-J and 416B).  Accordingly, a plaintiff who has no bona fide claim but intends to use litigation to cause the defendant financial (or other) prejudice will be abusing the process (seeBeinash and Another v Ernst & Young and Others 1999(2) SA 116 (CC)…. para [13]). Nevertheless it is important to bear in mind that courts of law are open to all and it is only in exceptional cases that a court would close its doors to anyone who wishes to prosecute an action… The importance of the right of access to courts enshrined by s 34 of the Constitution has already been referred to. However, where a litigant

abuses the process this right will be restricted to protect and secure the right of access for those with bona fide disputes…”

[53] Counsel observed that, with reference to the judgment of Lord Denning in Goldsmith v Sperrings Ltd   [1977] 2 All ER 566  (CA) at 574, Nienaber JA distinguished the fundamental difference between the position in English law and that in our law. In our law, as I understand the approach posited, an improper motive will not necessarily be regarded by the court as consituting an unconscionable or unlawful objective which merits censure,  if the end result of the application of that process is not legally tenable or permissible.

[55] If one applies the mandated approach to the facts at hand the following issues emerge. In the sms of 15 January 2015 Venter was clearly incensed about the alleged unlawful use of the domain name. While no litigation had yet commenced, it is clear that Venter wanted to put a stop to Shaun’s use of it. His remedy in the circumstances was to approach the court for appropriate interdictory relief against Shaun, an approach which was ultimately vindicated in the judgment of Henney J of 8 July 2015. To be sure, Venter could attempt to persuade Shaun in pre-litigation correspondence to see the light and and to abandon his attempt to misappropriate the domain name. He might even be permitted, within limits, to express himself in strong language as some businessmen seem wont to do. But what Venter could not do was to threaten and abuse Harris (with whom there was no lis, and against whom no order could be made) in an endeavour to indirectly put undue pressure on Shaun.

[56] Two days later, on the Saturday evening preceeding the Monday on which the domain name interdict application was launched, Venter sought to intimidate Shaun at his home with threats of violence and foul language. Those threats per se constituted a criminal offence (common assault) and can accordingly never fall within the permissible grounds of impropriety.

[57] Shortly after the hearing before Henney J, Venter was at it again: threatening Harris to procure something which he could not deliver viz an undertaking that there would be no passing off of the domain name. Undoubtedly, Venter’s objective was again to put pressure on Shaun through the harassment of his father. Not only were the demands demonstrative of an attitude of paternalism, as with the sms of 15 January, the threats were made in the absence of any lis between Harris and Venter and it cannot be suggested that they were either permissible or that they served a legitimate end.

[58] In the “Slow Train” email of 27 June 2015, following the withdrawal of Louw as Harris’ attorney in the rehabilitation application, Venter relied on dripping sarcasm and puerile one-liners to harass his nemesis yet again. In para 3 of that email the purpose of the harassment was clearly stated by Venter as follows –

“If you don’t settle [the domain name litigation] we will ensure that you don’t rehabilitate.”

Earlier in that email Venter accused Harris of having “stolen” the domain name (something which was manifestly not true - if anything it was Shaun, through Finnman, who had used the name to compete unlawfully with Fairhaven) and

bragged that he would make good on his promise to “play dirty”. The latter was a reference to Venter’s avowed intention to use the mechanism of the Insolvency Act to procure the establishment of an enquiry undersec 152(2) before a magistrate at which Harris would be questioned ad nauseam  in an endeavour to put pressure on him to persuade Shaun to concede the domain name application.

[59] It is necessary at this juncture to consider the purpose of an interrogation under the Act. As is pointed out in Mars, the Act makes provision for three distinct processes of interrogation. Firstly, there is the procedure contemplated in sec 42 in which the integrity and validity of creditors’ claims against the insolvent estate is considered. Secondly, there is the enquiry contemplated under secs 64-66 at which the creditors are entitled to interrogate the insolvent’s affairs in a public hearing. That interrogation is similar to the public enquiry contemplated under secs 415-416 of the old Companies Act of 1973. Thirdly, there are the provisions of sec 152 of the Act which provide for a private interrogation before the Master or a designated official. This is akin to the machinery available under secs 417-418 of the old Companies Act. Sec 152 incorporates various of the procedural aspects of sec 64, including the subpoenaeing of witnesses and documents, and the like.

[60] The ambit of an enquiry under sec 152 is limited to the gathering of relevant facts and no decision is taken by the presiding officer which is capable of review.

Such an enquiry is traditionally veiled in secrecy and, for instance, the insolvent is not entitled as of right to prior access to the documentation placed before the Master when the application for the enquiry is requested. Nor is the insolvent entitled to be present throughout the enquiry. Harris would be permitted to be legally represented at his interrogation, but thereafter would be in the dark as to what transpired since no record need be kept of the proceedings and the contents of what is uncovered are regarded as confidential. In Strauss  Mynhardt J observed that there was a similarity between secret enquiries held under secs 417 and 152, and that the substantial body of law that has developed in respect of the former is applicable to the latter. As to the object of the latter the Learned Judge said the following at 663 A-C:

“Section 152 is an important and valuable mechanism for the Master and the trustee of the insolvent estate to obtain information which might enable them to secure assets belonging to the insolvent and to obtain clarity on claims or demands that have been made against the estate of an insolvent. It is therefore also important to safeguard the interests of persons who furnish information to the trustee or to the Master in a confidential manner. Should the Master too readily make such information available to persons such as the applicants who have been summoned to be interrogated, a valuable source of information for the Master, or the trustee, might be destroyed. It is therefore also important for the Master, as a matter of policy, to keep information confidential which has been furnished to him in a confidential manner.”(Emphasis added)

[62] There is however an important distinction between secs 417 and 152. The former is controlled through the intercession of the High Court and the Master, and in the event that the interrogation is to take place under the aegis of the Court, a court appointed commissioner is customarily appointed as presiding officer (often a legal practitioner or retired judge with experience in corporate insolvency). Under sec 152,

however, it is solely the Master that may convene the enquiry before either a Magistrate or other civil servant. The parties entitled to question a witness at a sec 152 enquiry are only the Master (or the civil servant) and the insolvent’s trustee. Given the purpose of a sec 152 enquiry, it would usually be the trustee who would be the driving force behind the enquiry since that would be the party interested in establishing, for example, the existence of hidden assets which might be recovered for the benefit of creditors. Further, there is no provision in sec 152 for a creditor to interrogate the insolvent or other party subpoenaed to the enquiry, and it is difficult to understand how the Fairhaven interests would give effect to Venter’s avowed recreation of the Star Chamber.

[63] Be that all as it may, at the time that this part of the campaign of harassment of Harris was conceived, it was considered by the Fairhaven interests (in whatever corporate guise they decided to cloak themselves) that they did not have any legal basis to ask the Master for such an enquiry since they were not a creditor in Harris’ estate. The approach of their attorney (then purporting to act on behalf of the somewhat paradoxically named “Dream World”) to Shaw setting out the client’s intention to acquire such a claim was met with significant caution by an experienced liquidator. The move was something which genuinely surprised Shaw since he confessed that he had never before come across a situation where an interrogation under sec 152 had been employed to resolve the disintegration of a business relationship. Nevertheless, as we have seen, the attorney then went about contacting the known major creditors whose claims had not been settled in full (all banks) to procure what was seen by Venter as the most effective method to ruin Harris financially and attain complete control of Summerclub.

[64] The position seems to have been that the procurement of a claim against Harris’ estate would ensure the Fairhaven interests the right to oppose the rehabilitation application but, in so doing, would provide them with a ‘stalking horse’[18] with which to approach the Master for the establishment of a sec 152 enquiry. Ultimately such an enquiry would not afford those interests an opportunity to interrogate Harris with a view to exposing his alleged secretion of personal assets in Avodah: that function is entrusted to the trustee who, it is clear, has expressed no further interest in the matter. On that basis alone it seems to me that the scheme was still-born and can never have been said to be persuing a legitimate aim.

THE REAL INTENTION OF THE FAIRHAVEN INTERESTS

[65] In the “Slow Train” email to Harris of 27 June 2015 Venter made no attempt to disguise his intention at that time. Having explained why he had made contact with Shaw in January 2015 Venter went on to say the following:

“I gave you a full copy of the documents [handed to Shaw] and my reasoning (sic) that I would use to institute a 152 investigation. I did this as I did not want your money and did not want to fight. I wanted our website back. Your actions or lack thereof left me with no alternatives…”

And later in the same mail the prospect of financially ruining Harris is highlighted:

“I am in the final stages of negotiating the purchase of two more BIG claims in your estate that are going to cost you a fortune….

“….At this point there will be no settlement at all and I will come for every last cent that you have.”

[66] It must be borne in mind that at this stage the domain name litigation had been argued and judgment was awaited, Fairhaven having elected to exercise its legal remedies by way of an urgent application to this court. To the extent that Venter was intent upon bypassing the legal route which his company had adopted, with the issuing of threats and promises of further harassment ultimately designed to reduce Harris to penury, he brought the matter squarely within the the ambit of the proscribed conduct referred to by Lord Denning in Goldsmith. On behalf of the Fairhaven interests, Venter turned his back on the “the machinery for keeping order and doing justice” and abused it by diverting “it from its true course so as to serve extortion or oppression; or to exert pressure so as to achieve an improper end.” And he did so in the absence of a legitimate end which may otherwise have saved his admitted abuse.

[67] The duty of the court in such circumstances was described thus by de Villiers JA in Hudson at 268:

“When therefore the Court finds an attempt made to use for ulterior purposes machinery devised for the better administration of justice, it is the duty of the court to prevent such abuse.”

And in Beinash Mahomed CJ said the following in a matter in which the primary objectives of Rules 35 (discovery) and 38 (subpoena duces tecum) were being considered in relation to allegations that they had been abused:

“The object of Rule 35 is to enable a litigant to discover documents in the possession of or control of another party to the proceedings, whereas the primary object of Rule 38 is to secure the production of documents from persons who are not necessarily parties in the main proceedings… The distinction is perfectly sound, but the machinery contained in both of these rules must be utilised in a bona fide   manner and not for the purposes of pursuing ends extraneous to the real objectives sought to be obtained through these rules. The existence of bona fides  is the basic precondition upon which both of these rules are premised.”

[68] The absence of bona fides on the part of the Fairhaven interests and the persuit of extraneous ends by its controlling shareholder are adequately demonstrated in the numerous passages to which I have referred but for the sake of completeness I would highlight the following 2 instances. Firstly, the unconscionable threats by Venter of physical violence to Shaun and the intended reduction of Harris to penury over a protracted period of time can never be considered to have been bona fide. Secondly, and as demonstrated above, the acquisition of the claim from Nedbank was not for a legitimate purpose as contemplated by sec 152. Venter himself said so in the “Slow Train” email of 27 June 2015, but even then he did not reveal to Harris what his real quest was. This was left up to the Fairhaven interests’ attorney to negotiate under the protection of without prejudice correspondence.

[69] Indeed, the very fact that Fairhaven’s attorney ignored the caution of Shaw and began fossicking around to acquire a claim on behalf of Fairhaven in and of itself demonstrates that at the outset Fairhaven had neither an actual nor legitimate interest in Harris’ estate. It had to spend a substantial amount of money and time to acquire the locus standi which it considered necessary to persue what it regarded as a legitimate end – the holding of an enquiry to ostensibly address the interests of creditors - but which in truth was an exercise “extraneous to the real objectives sought to be obtained”.

[70] In my considered view, the settlement proposal put forward in June 2015 by Fairhaven’s attorney to Louw finally raises the true motive for the campaign of harassment of Harris. Not only did Venter wish to regain use of the Fairhaven domain name, he wanted to procure Avodah’s share in Summerclub for no consideration and oblige Harris to pay R1,5m towards the Fairhaven interests’ legal expenses and the acquisition of Nedbank’s claim. That proposal demonstrated unequivocally that the “real objective” of Venter’s campaign of abuse and pressure was a commercial interest: the acquisition of an asset which could not otherwise be procured by the Fairhaven interests via the litigation route. While it is perhaps arguable that an application for the winding up of Summerclub under sec 81(1)(d) or (e) of the Companies Act, 71 of 2008 might have facilitated the desired result, neither the urgent application for an interdict for the passing off of the domain name, nor an interrogation before the magistrate Somerset West in terms of sec 152 could ensure that the Fairhaven interests would acquire total control of the equity in Summerclub.

[74] In these passages (and various others in the papers) no claim is made to some loftier purpose or legitimate end which justified the vendetta of coercion against Harris or which would render the campaign of abuse tolerable in the pursuit of another purpose. Nor is any apology offered in the court papers for the offensive nature of the demands made by Venter or the language and innuendo employed therein. Rather, de Necker seems to brazenly defend his business partner’s antics by resorting to the “blame game” and heaping the responsibility for the state of affairs on Shaun.

[75] That Fairhaven’s intervention in the rehabilitation application is manifestly an abuse of process is further demonstrated by the fact that, according to the founding affidavit, its business is that of a property developer. Fairhaven does not involve itself in the purchase or factoring of debts, or debt-collecting. Other than as a vehicle for Venter (and possibly Wiehahn) it has no interest in the intervention application.

[76] For these reasons I am of the view that Fairhaven’s application to intervene in the rehabilitation application is without merit, is not bona fide and is an abuse of the process of this court which, in terms of the authorities to which I have referred, must be stopped dead in its tracks. The application falls to be refused with costs.

THE MERITS OF THE APPLICATION FOR REHABILITATION

[84] In his applicantion for rehabilitation Harris must satisfy the court that he is a fit and proper person to be permitted to trade with the public on the same basis as any other honest business person. The test was formulated thus by Wessels J nearly a

century ago , but despite the myriad changes in commercial practice and business ethics in that time, it remains very much applicable today –

“I have to enquire whether the applicant is such a person as ought to be rehabilitated - is he a person who ought to be allowed to trade with the public on the same basis as any other honest man? That depends entirely on how he conducted his trade before he became insolvent. If he conducted himself in a negligent manner, or so as to deceive others, he is not a person who ought to be rehabilitated until it is clear that he intends to adopt better methods. His rehabilitation ought to be withheld from him, or at any rate it ought to be postponed for such a time that he will receive a severe lesson as to the necessity of trading honestly.”

[85] In light of my refusal of the application to intervene I am not required to deal with the various grounds relied upon by the Fairhaven interests in the affidavit of de Decker which were said to be a bar to rehabilitation. The allegations made by Harris in the affidavits filed in support of the rehabilitation application therefor stand uncontradicted. In any event, the founding affidavit, the answer and the reply thereto in the intervention application raised material disputes of fact. Those disputes fell to be resolved in terms of Plascon-Evans [24] .  Harris did not ask for a referral to oral evidence but rather relied on dismissal of the intervention. Fairhaven did not pursue that option either, believing that any such disputes could be addressed at the sec 152enquiry. I have already demonstrated why this would not have been possible given the limited rights afforded to Harris at such an enquiry, the absence of any record keeping and the fact that there is no process by which to incorporate such testimony in these proceedings.

[88] The supplementary report by the Master is regrettably of little value to the court. Firstly, there is no indication that the Master has considered the full set of papers, including those filed in the application to intervene and that she hs applied her mind thereto. In addition, I have to say that the supplementary report is poorly drafted as the following example demonstrates:

“6. Therefore the letter dated 21 July 2015 is not a proof that, the Master has received the trustees report and does not have Master date stamp. Since now the Master has received copy of the trustee’s supplementary report attached to the letter dated to September 2015 from Ens attorneys the master will consider the supplementary reports for the rehabilitation of Mr Davies Harris.”

[89] The Master goes on to note that an enquiry in terms of section 152(2) has been convened and offers the court a brief synopsis of the import of that subsection. While abiding the decision of the court the Master says that “based on the above section (ie 152(2))”, the application for rehabilitation should be held in abeyance pending finalisation of the enquiry. The Master does not draw to the court’s attention any additional factors in the rehabilitation application which she believes would militate against a rehabilitation order. All that she seems to say is that the enquiry ought to go ahead because it has been convened, although she does not say what benefit would accrue from the holding thereof.

[90] In her initial report the Master confirmed that all of the requisite statutory requirements had been complied with by Harris, save for the filing of the trustees’

reports. In his supplementary affidavit dated 31 July 2015 Harris explains that there were two trustees’ reports filed with the Master on 29 May and 9 June 2015, and in the garbled explanation referred to in para 88 above the Master seems to acknowledge that this is correct.

[91] The supreme irony in this matter is that having done business extensively with Harris for any number of years after his sequestration, the Fairhaven interests had no apparent basis to doubt Harris’ integrity as a businessman until January 2015. And, when they did so, as I have found, such professed doubts were predicated on ulterior motive. Certainly, the Fairhaven interests had no qualms about paying a large sum of money to the Trust in May 2014 at a time when they claim they were fully aware (for the first time, they allege) of Harris’ status as an unrehabiltated insolvent. It is significant too, I believe, that Shaw was a party to that agreement and that there was nothing untoward in the transaction which appears to have raised any concerns on his part. Indeed, when he filed his report in relation to this application a year later, the May 2014 agreement would presumably have come to mind and there appears to have been nothing at that stage either that troubled him in relation to the lawfulness of the agreement

[92] As far as the Ayodah Trust is concerned, I would only add that the use of a trust by an insolvent to hold a family home, for example, has been considered by this court to be a matter of financial prudence and estate planning. Furthermore, there is no evidence before this court to suggest that the Avodah Trust was set up deceitfully, or that Harris played any roll in relation to the administration thereof. After all, an independent trustee (a senior attorney who has practised in this Division for many years) was appointed and it is hard to believe that the trust would have been permitted by him to be abused by Harris as his alter ego.

[93] If the reasons for Harris’ insolvency are considered, one sees a property developer who flew high and ultimately too close to the sun – a person who overcommitted himself in terms of a large property transaction (which leading financial institutions were prepared to finance), took his profits before they had actually accrued, and consequently became entangled in a spiral of debt. Finally, there is no evidence before the court which suggests that Harris was deceitful or duplicitous in his subsequent employment as an estate agent. On that score, the undisputed evidence is that Harris discussed his prospective employment with Shaw at the time and the latter says that he urged Harris to find a job and restore his self-esteem and financial independence.

[94] I am accordingly satisfied that Harris has made out a proper case for his rehabilitation and that an order to that effect should be granted.

ABSA Bank Limited v Naude NO and others [2015] JOL 33323 (SCA)

Business rescue – Adoption of business rescue plan – Application for setting aside of plan – Non-joinder – Test for non-joinder – does party have direct and substantial interest in subject matter of litigation which may prejudice non-joined party – Creditors who would be prejudicially affected by setting aside of business rescue plan should be joined as parties to the matter

The appellant bank had voted against a business rescue plan in respect of the second respondent. Despite that, the plan was adopted. As a result, the bank brought an application against the company and the first respondent who was the business rescue practitioner, for a declaratory order that the decision taken at the relevant meeting of creditors, approving the business rescue plan for the company, was unlawful and invalid. A counter-application was brought by the company and the practitioner for a declaratory order that in terms of the old Companies Act 61 of 1973, a cross-suretyship executed by the company and other related companies, in favour of the bank, was void.

The application was dismissed, inter alia, on the basis that the bank had failed to join the creditors of the company and that it was precluded by section 133 of the Companies Act 71 of 2008 from bringing such an application without the written consent of the practitioner or the leave of the Court. The counter-application was dismissed as it was found that the cross-suretyship was valid and not contrary to the provisions of section 226(1) of the old Companies Act 61 of 1973.

In a subsequent application, the bank stated that it seemed that the plan could not be implemented as the bank had not received any payments. In the meanwhile the business rescue plan was implemented and the first payments to creditors, in terms of the business rescue plan, were made. The practitioner deposed to an answering affidavit and raised the issue of the non-joinder of the creditors of the company. The reasons for insisting on joinder of the creditors were that the setting aside of the business rescue plan would undo their vote in favour of such plan and it would require each creditor to return all monies that were paid to it pursuant to such plan. The bank averred that the notice given to creditors in terms of section 130 of the Companies Act 71 of 2008 was sufficient.

Held that notice in accordance with the provisions of section 130(3) is confined to matters where an application is brought prior to the adoption of a business rescue plan. The court held further that the argument by the bank that the issue of non-joinder did not arise because the creditors had knowledge of the proceedings, due to the notices dispatched to them, and did not intervene, was without substance. The test whether there has been non-joinder, is whether a party has a direct and substantial interest in the subject matter of the litigation which may prejudice the party that has not been joined. If an order or judgment cannot be sustained without necessarily prejudicing the interest of third parties that had not been joined, then those third parties have a legal interest in the matter and must be joined. In this case, as explained above, if the creditors were not joined their position would be prejudicially affected. Consequently, the court below was correct in upholding the non-joinder point.

The appeal was dismissed with costs.

Communicare and others v Khan and another [2015] JOL 33681 (SCA)

Company law – Members of company – Right to vote at general meeting – Member’s right to vote at a general meeting would ordinarily fall within the category of personal membership rights and not corporate rights

The high court granted an order that the election of certain directors of the two appellant companies was invalid and had to be set aside. The companies’ articles of association provided that a third of the members of the boards of the companies was obliged to retire by rotation at the end of each year. At the meeting question, the retiring directors were excluded from voting in the election of their successors.

Two of the grounds upon which the appellants opposed the relief sought by the respondents and which formed the basis of the appeal, were that the resolutions were validly passed and in any event, that the respondents lacked the necessary locus standi to challenge their validity. The locus standi of the respondents was challenged on the basis that where a majority of members at a general meeting are lawfully entitled to correct, condone or ratify irregular conduct by the company in the management of its internal affairs, a court will not intervene at the behest of a member to compel the company to rectify such conduct. therefore, the appellant contended that individual members such as the respondents had no right to enforce corporate rights, except when the irregularity complained of could not be remedied by the company, or the member’s individual membership rights had been affected adversely. It was submitted that on the facts of the present case, the right of the respondents to vote at the annual general meetings of the appellants, was a corporate right, and not an individual member’s right.

Held that the issue for determination was whether the respondents had the power to approach a court to enforce, against the appellants, their rights to effectively exercise their votes on the election of directors at the annual general meetings of the appellants.

The court confirmed that a member’s right to vote at a general meeting and have his vote counted, would ordinarily fall within the category of personal membership rights. Each member has a special interest in the observance of this right, distinct from the general interest which the members have in the observance by the company of its articles. In terms of section 165(1) of the Companies Act 71 of 2008, a personal action by a member at common law, to enforce rights which vest in a member in the articles, does not seem to have been abolished.

The eligibility of retiring directors to vote as members, in respect of the election of directors to fill vacancies in their number, was dependent upon their status as directors remaining as such, until the election took place. The court concluded that on a proper interpretation of the companies’ articles, the directors who retired at an annual general meeting were entitled to vote as members in respect of the election of individuals to fill such vacancies. The exclusion of the retiring directors from voting was accordingly unjustified and the resolutions appointing replacement directors were correctly declared invalid by the High Court and set aside.

The appeal was dismissed with costs.

NAIDOO AND OTHERS v KALIANJEE NO AND OTHERS 2016 (2) SA 451 (SCA)

Insolvency — Trustee — Property passing to trustee — Warrant to take possession of insolvent's property — Issued in circumstances where assets already

under judicial attachment — Whether magistrate precluded from issuing warrant — Insolvency Act 24 of 1936, s 69(3).Insolvency — Trustee — Property passing to trustee — Warrant to take possession of insolvent's property — Distinction between such warrant and one issued under CPA — Provisions applicable to issuing of warrant under CPA not applicable to issuing of warrant under Insolvency Act — Insolvency Act 24 of 1936, s 69(3); Criminal Procedure Act 51 of 1977, s 21.

This matter concerned the validity of a search-and-seizure warrant issued by a magistrate in terms of s 69(3) of the Insolvency Act 24 of 1936 (the Act). The liquidators of a close corporation, M & M, of which the first appellant was the sole member, had approached the magistrate for such a warrant on the basis of their reasonable belief that assets of M & M had been concealed. The appellants had subsequently, without success, applied to the court a quo to have the warrant set aside. In the Supreme Court of Appeal, the appellants raised multiple challenges against the validity of the warrant. The court rejected all such challenges and dismissed the appeal.One challenge was that the liquidators' application constituted an abuse of process, in that (a) the warrant was unnecessary, in that assets which the relevant authorities were empowered in terms of the warrant to attach were already under judicial attachment; and (b) the request for the warrant had been motivated by an improper purpose.Held, as to (a), that the judicial processes had proven to be ineffective, and the surreptitious concealment of assets long after the formality of their attachment did not preclude a magistrate from issuing a warrant to preserve them. As to (b), the claims to such effect were entirely unsubstantiated. In reality, the existence of a reasonable suspicion that the assets of M & M had been concealed constituted an answer to both allegations. It was argued that while the issuing of a warrant under s 69(3) constituted the exercise of a judicial discretion, it was not akin to civil proceedings. As such, given that the warrant had included a costs order and, in providing a 'return date', had been granted provisionally, it had been issued beyond the provisions of s 69 of the Act.Held, that while the clauses relating to costs and the return date were anomalous, it was clear that the warrant had not been issued in the process of civil litigation, but, in the light of its other provisions, it was no more than a warrant issued under s 69. The anomalous provisions, in truth, had no effect — the costs clause was unenforceable, while the reference to a 'return date' did not mean that the warrant was 'provisional'. The appellants also contended that, in light of the wording in s 69(4) of the Act that the warrant 'be executed in a like manner as a warrant to search for stolen property', one had to regard such a warrant as one issued under the provisions of the Criminal Procedure Act 51 of 1977 (CPA). The warrant under consideration did not, however, match up to the strict requirements of a criminal warrant and had to be set aside.Held, that there were fundamental differences between a warrant issued under s 69 of the Act and a criminal warrant, and, as such, the former could not be construed as being akin to a warrant issued under s 21 of the CPA, nor necessarily subject to the same limitations and restrictions attendant upon criminal warrants. Further, the reference to s 21 of the CPA in the warrant meant simply that it had to be executed in the manner set forth under such section, and not that it was, or was to be regarded as, a warrant issued under the CPA. As such, the appellants'

argument, that the warrant had to comply with the provisions of s 21 of the Criminal Procedure Act and that it was therefore necessary for a specific police officer to be identified in the warrant as the person who should effect the search and seizure, fell away.

LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA t/a THE LAND BANK v FACTAPROPS 1052 CC AND ANOTHER 2016 (2) SA 477 (GP)

Mortgage — Mortgage bond — Nature — Not only applying to immovable property — Special notarial bond constituting mortgage bond — Security by Means of Movable Property Act 57 of 1993, s 4; Insolvency Act 24 of 1936, s 2.Mortgage — Notarial bond — Special notarial bond — Nature — Constituting mortgage bond — Security by Means of Movable Property Act 57 of 1993, s 4; Insolvency Act 24 of 1936, s 2.Prescription — Extinctive prescription — Period of prescription — Debt secured by special notarial bond — Special notarial bond constituting mortgage bond to which 30-year prescription period applying — Prescription Act 68 of 1969, s 11(a)(i).

Subsection 11(a)(i) of the Prescription Act 68 of 1969 provides for a prescription period of 30 years in respect of 'any debt secured by mortgage bond'. The correct interpretation of s 11(a)(i) is that a special notarial bond is included in the reference to 'mortgage'. It follows that the applicable period of prescription of a debt secured by a special notarial bond is 30 years. The notion that mortgage bonds must in all instances apply to immovable property is negated by the substitution (effected by s 4 of the Security Act 57 of 1993) of the definition of 'special mortgage' in s 2 of the Insolvency Act 24 of 1936, to include both 'a mortgage bond hypothecating immovable property and a notarial mortgage bond hypothecating specially described movable property'. Both confer a real right of security upon registration in the Deeds Office. 

MASSTORES (PTY) LTD v PICK 'N PAY RETAILERS (PTY) LTD AND ANOTHER 2016 (2) SA 586 (SCA) 

Delict — Specific forms — Interference with contractual relationship — What constitutes — A and B both leasing spaces in shopping centre — In terms of A's contract with landlord, A restrained from operating supermarket; in terms of B's contract with landlord, B given exclusive right to operate supermarket — A operating supermarket in breach of its restraint preventing B from obtaining performance in terms of its right to exclusivity — Whether requirements of delict met.Delict — Specific forms — Interference with contractual relationship — Inducement not prerequisite for successful action.Lease — Huur gaat voor koop rule — When applicable — Inapplicability of rule to 'collateral rights' unconnected with lease — Exclusivity clause in lease agreement integral part of that lease and not collateral right.

The appellant in this matter, Masstores (Pty) Ltd (Masstores), leased part of the shopping centre, Capegate, in terms of an agreement entered into with the owner (lessor) at the time, the Capegate Regional Centre Joint Venture (JV). Such agreement contained a restraint provision to the effect that Masstores would not operate as a 'general food supermarket'. The first respondent, Pick 'n Pay Retailers (Pty) Ltd (Pick 'n Pay), had also entered into a lease agreement with the JV in terms of which it leased a part of the shopping centre. That lease agreement secured Pick 'n Pay a right of exclusivity by providing that the lessor would not permit any other supermarket to be operated in the shopping centre. However, in the view of Pick 'n Pay, Masstores did commence operating a general food supermarket when the latter launched its Foodco concept in its Game store in Capegate. Arising therefrom, Pick 'n Pay launched an application in the court a quo, seeking a final interdict against Masstores, restraining it from interfering in the contractual relationship between Pick 'n Pay and the second respondent, Hyprop Investments Ltd, being the JV's successor in title (Hyprop), by carrying on a business exclusively granted to Pick 'n Pay in terms of the latter's lease agreement. The court a quo granted the interdict. Masstores appealed such order.The first question that called for the Supreme Court of Appeal to decide was whether Masstores had operated a general food supermarket, thereby breaching its agreement with Hyprop, and trading in competition with Pick 'n Pay. It held that it had. This was in the light of the photographic evidence, the ordinary dictionary definition of 'supermarket', and Masstores' views of its own affairs. Pick 'n Pay's claim was based in delict, namely the unlawful interference (in this case by Masstores) in a contractual relationship (between Pick 'n Pay and Hyprop). The central question, then, was whether Pick 'n Pay had successfully met the requirements to establish such a delict, namely: an unlawful act; which constituted an interference in the contractual relationship; and which was committed with some form of dolus. Related was the question whether, as was claimed by Masstores, to be successful in its claim for unlawful interference in a contractual relationship, Pick 'n Pay had to prove an inducement by Masstores of Hyprop.Held, that Pick 'n Pay had established the requirements for its delictual claim. Masstores, in becoming aware of Pick 'n Pay's rights to exclusivity yet continuing to trade as a supermarket, acted contrary to the restraint contained in its lease and in defiance of the demand to cease trading as a supermarket. In doing so it acted wrongfully in preventing Pick 'nPay from obtaining the performance to which it was entitled by virtue of its contractual right of exclusivity. Further, in failing to heed the demand from Hyprop to desist from conducting a supermarket, it acted with direct intent, or, at the very least, dolus eventualis. Held, that inducement or enticement is not a requirement in a claim based on unlawful interference in a contractual relationship. Delictual actions in interference cases, in addition to those where inducement or enticement features, include those where there is a breach of a legal duty or the infringement of a subjective right; this case would fall into the latter category.On behalf of Masstores it was further argued that Pick 'n Pay's personal right to exclusivity, which it had negotiated with JV, the owner of Capegate at the time, did not bind successive owners, ie Hyprop. The huur gaat voor koop rule which might otherwise have been of assistance to Pick 'n Pay, so it was argued, was limited to a lessor's obligation to give possession and a lessee's concomitant obligation to pay rental; the right to exclusivity, however, was a 'collateral right' unconnected with the lease.

Held, that, in respect of the lease entered into by Pick 'n Pay, the right to exclusivity was a sine qua non for its tenancy. Thus understood, the right to exclusivity was integral to the right of occupancy and could not be regarded as a collateral right. Appeal dismissed.

OCTOBER AND ANOTHER NO v HENDRICKS AND ANOTHER 2016 (2) SA 600 (WCC)

Land — Unlawful occupation — Eviction — Statutory eviction — Unlawful occupier — Whether holder of bare ownership in context of usufruct could be unlawful occupier — Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998, s 1.Usufructuary - person in charge-consent of usufructuary essential

This case concerned the executor of an estate who applied in that capacity as the owner of a property to evict certain 'unlawful occupiers' under the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998.The case raised the position of a usufructuary and holder of bare ownership in the context of the Act, and the question whether a holder of bare ownership could be an 'unlawful occupier'. An 'unlawful occupier' is defined as 'a person who occupies land without the . . . consent of the owner or person in charge, or without any other right in law to occupy the land . . .' (s 1).Held, that an owner might, or might not be, the person in charge of the land (the person with authority to permit others to enter or reside on it); and that it was the consent of the person in charge that was relevant. In the context of a usufruct, the usufructuary would be the person in charge; and a holder of bare ownership occupying without the consent of the usufructuary could be an 'unlawful occupier

City of Tshwane Metropolitan Municipality v Mitchell [2016] 2 All SA 1 (SCA)

Administrative law – Property – Section 118(3) of the Local Government: Municipal Systems Act 32 of 2000 – Interpretation of – Whether security provided for in section 118(3) in favour of a municipality, for moneys owed to it for services delivered in respect of fixed property, is extinguished when the property is sold at a sale in execution and subsequently transferred to the purchaser – Debt not extinguished on transfer of property, but municipality must comply with jurisdictional requirements in terms of own by-laws before pursuing owner for debt.

The interpretation of section 118(3) of the Local Government: Municipal Systems Act 32 of 2000 was at the heart of the present matter. The question on appeal was whether the security provided for in section 118(3) in favour of a municipality, for moneys owed to it for services delivered in respect of fixed property, is extinguished when the property is sold at a sale in execution and subsequently transferred to the purchaser.

In February 2013, the respondent purchased immovable property situated within the appellant’s municipal boundaries at a sale in execution.

In terms of section 118(1), a registrar of deeds may not register the transfer of property, except on production of a clearance certificate confirming that all amounts due to the municipality in respect of that property for service fees, levies, rates and taxes for the two years preceding the date of application for the certificate, had been paid in full. When the respondent applied for a clearance certificate, the appellant issued a written statement reflecting an outstanding amount in respect of municipal service fees, levies and rates. That amount included debts older than two years preceding the date of the application for a clearance certificate.

The amount in question was disputed by the respondent, and the appellant amended the amount to represent only the debt due for the two years preceding the date of the respondent’s application for issue of the certificate. Consequently, the historical debt was left still outstanding, due and payable if it had not become prescribed.

The respondent sold the property to a third party (“Prinsloo”) who, before taking transfer, applied to the appellant for the supply of municipal services. A municipal official refused to open an account in her name and informed her that she would be held liable for the historical debt. Prinsloo, accordingly, gave instructions to the attorney who was to deal with the transfer not to proceed with it until the issue of the historical debt had been resolved. The respondent then approached the High Court for a declaration that he, or his successors in title of the property, were not liable for the historical debt owed to the appellant by previous owners. Finding in the respondent’s favour, the High Court held that the security provided by section 118(3) in favour of the respondent was extinguished by the sale in execution and subsequent transfer of that property into the name of the applicant.

Held – In the case of City of Tshwane Metropolitan Municipality v Mathabathe and another [2013] 3 All SA 227 (2013 (4) SA 319) (SCA), the present Court clearly held that a transfer of property from one owner to another does not extinguish the security created by section 118(3). In distinguishing between that case and the present one, the court a quo was wrong. The Court disagreed with the respondent’s submission that section 118(3) of the Act should be interpreted in accordance with the common law relating to the effect of a sale in execution on the rights of bondholders. No distinction can therefore be drawn between property sold either at a sale in execution or in a private sale when considering the question whether the hypothec created by section 118(3) survives transfer. It follows that the court below erred in concluding that the appellant’s statutory hypothec had been extinguished by the sale in execution and subsequent transfer of the property into the name of the respondent.

The Court held that there was nothing preventing the appellant from perfecting its security over the property to ensure payment of the historical debt. Perfecting its security would involve obtaining a court order, selling the property in execution and applying the proceeds to pay off the outstanding historical debt. Counsel for the appellant conceded that before a municipality can look to an owner for payment, it has to comply with its own by-law, and has to show that there is no occupier on the property concerned and the person who had entered into the contract to receive the services cannot be traced or has absconded, is unable to pay, or does not exist.

The majority of the court concluded that the court below should not have made the orders it granted and the respondent’s application should have been dismissed. The appeal was thus upheld.

Southern Value Consortium v Tresso Trading 102 (Pty) Limited (Klopper NO and another as intervening business rescue practitioners)[2015] JOL 34787 (WCC)

Company law – Company in business rescue – Ejectment application – Defence – Sections 133(1), 134(1)(c) – Companies Act 71 of 2008

Mini Summary

Having granted an order ejecting the respondent from certain property, the court provided its reasons.

In August 2014, the applicant and respondent concluded a lease agreement in terms of which applicant let the property to respondent. About eight months later, the applicant informed the respondent that it was in breach of the agreement of lease by failing to make payment of the rental and additional charges.

In the present application, the applicant stated that it had cancelled the lease agreement and that it was entitled to eject respondent from the property. The respondent had been placed under business rescue, and the intervening parties were the business rescue practitioners. They raised a number of defences in limine. They argued that there was a conflict in the identity of the entities which claim to represent the applicant; that there was no proof that the applicant’s manager was authorised to bring the present application on behalf of applicant; that the applicant had come to court with dirty hands in that it had unlawfully dispossessed respondent from the property by changing the locks; and that the applicant’s attachment of respondent’s movables was irregular. The substantive defence was that applicant was precluded by the provisions of sections 133(1) and 134(1)(c) of the Companies Act 71 of 2008 from pursuing the present application.

Held that the preliminary points were without merit, and mostly were irrelevant to the present matter.

Turning to the principal defence, the Court explained that section 133 of the Companies Act 71 of 2008 set a general moratorium on legal proceedings against company during business rescue proceedings, and section 134 protected the company’s property interests. The applicant’s cause of action in the present case was the rei vindicatio. It sought to recover property in respect of which it had a real right, namely ownership. It did not seek to enforce any contractual or other personal right against respondent. As the property in question in this case did not belong to the respondent, the business practitioners could therefore not rely on the provisions of section 133(1) of the Companies Act 71 of 2008 as a defence to applicant’s claim. Similar reasoning applied to the interpretation of section 134(1)(c) of the Companies Act 71 of 2008. Therefore, the applicant was not precluded by the provisions of

sections 133(1) and 134(1)(c) of the Companies Act 71 of 2008 from asserting its right of ownership in the property.

Minnaar v Van Rooyen NO[2015] JOL 33908 (SCA)

Civil procedure – Default judgment – Section 424(1) – Companies Act 61 of 1973 – Personal liability of members of close corporation – Acting recklessly in conducting affairs of company – Granting of order under section 424(1) of Companies Act 61 of 1973 by default where no evidence has been adduced – Erroneous within meaning of rule 42(1)(a) – Uniform Rules of Court

Judgment by default was granted against the appellant in terms of section 424(1) of the Companies Act 61 of 1973, which was still in operation at the time of the order being granted. The application had been brought by the liquidator of a company against the appellant and four other former directors, on the basis that they had acted recklessly in the conduct of the affairs of the company and should thus be liable for all the debts of the company.

Ten months later, the appellant sought the rescission of the default judgment in terms of rule 42(1)(a) of the Uniform Rules of Court, and under the common law. The Court refused relief under the rule because the order had not been erroneously sought, and refused relief under the common law on the basis that the appellant was in wilful default.

On appeal, the appellant argued that evidence must be led in order to determine liability under section 424(1). The court must determine whether a director’s conduct is reckless or whether the business of the company was carried on with the intention to defraud creditors of the company. It was contended further that the plaintiff must prove this on a balance of probabilities, and the court must assess the evidence. In this matter, no evidence at all was led.

Held that rule 41(1)(a), on which the appellant relied provides that a court may, in addition to any other powers it may have, mero motu or upon the application of any party affected, rescind or vary an order or judgment erroneously sought or erroneously granted in the absence of any party affected thereby.

None of the allegations against the appellant were supported by evidence. None was led. There was thus no proof at all, let alone prima facie proof, of whether his conduct had been fraudulent or reckless. Default judgment should, therefore, not have been granted. The question that then arose was whether it was erroneously sought and erroneously granted within the meaning of rule 42(1)(a). The Court held that it is inconceivable that an order would be made declaring a director liable for the debts of a company on the basis of reckless or fraudulent conduct where no evidence is led to support the allegations made. The liquidators were not entitled procedurally to default judgment against the appellant without leading evidence. By its very nature, the right to the relief sought under section 424(1) of the Companies Act 61 of 1973 had to be proved on a balance of probabilities. The liquidators were not entitled to rely on allegations made in the particulars of claim and denied in the defendants’ joint plea. At the very least they should have lead witnesses to show that

the directors had acted recklessly or with intent to defraud creditors. The order in terms of section 424(1) was thus erroneously sought, and, as a result, erroneously granted. It accordingly had to be rescinded in terms of rule 42(10(a).

The appeal was upheld and the default judgment set aside.

Liu v Roering NO and Another (25713/2016) [2016] ZAGPPHC 205 (15 April 2016)Creditors-rights-applying for sale of business as a going concern-application dismissed

The applicant is urgently applying that the respondents be prevented from selling any of the liquidated company’s, Xing Xing Farming, assets pending the rendering of a valuation report by a chartered accountant and an order directing the respondents to take the aforesaid report into account when contemplating a sale of any, or all of, Xing Xing Farming’s assets.  This chartered accountant should be nominated and appointed by the Chairperson of the South African Institute of its Chartered Accountants and must do so by no later than 7 court days after the expiration of the 10 days.  The chartered accountant is to be granted access by the respondents to all of Xing Xing Farming’s assets on portion 28 of the Groenfontein Farm in the Bronkhorstspruit district for a proper valuation of the assets.  The applicant is also further applying that the respondents be interdicted from selling any or all the assets of Xing Xing’s pending finalisation of an application to be brought within 30 days of an order being made to set aside the ex parte order made on 9 February 2016 by Louw J under case number 8595/2016.

The Xing Xing Farming operation is a close corporation; it was placed under voluntary liquidation and the respondents are the appointed liquidators. The close corporation’s business comprises of the production and sale of chicken eggs in batteries. 

 The applicant in his affidavit set out how he became involved in the business with his brother.  He averred that he was unaware of the liquidation and was very surprised as the business was from 2003 until 2015 (excluding the year 2002) making a substantial profit each year.  He is a creditor due to his share of the profits never being paid out to him. 

Despite his back-breaking work in building the batteries and his contempt for not receiving his share of the profits he is not contesting the liquidation i.e. applying for the rescission of the liquidation and has not instituted action against his brother for his fair share.  His aim is to claim his share of the profits as a creditor in the liquidation.  To achieve this, this application is to ensure that not only for his benefit, but also for the benefit of the other creditors, the business is sold as a going concern and not as a forced sale.  Although it is not put out in the papers that it must be sold as a going concern this was submitted from the bar.  The reason why it must be sold as a going concern is that “simple arithmetic indicates that the business is doing well and is very far from being bankrupt or even in trouble”.  To this end a chartered accountant’s valuation is necessary and the sale must be stopped to facilitate a higher sale value.  Louw J’s order must also be set aside.

In response to this the respondents set out that the operation of this business comprise of chickens consisting of productive lay hens, chickens destined to become lay hens and which are in the process of being reared and lay hens past their

production stage.  All of this requires immediate and extensive management in order to avoid any loss in numbers.  As it was a fully operational farmer operation that was taken over it required immediate attention in the form of insuring that the hens are properly fed, water provided, eggs removed and sold and all the other duties normally to be expected of an operation of this nature.  To this extent they approached the court to extend their power to effect the running of the business.  It was conceded that this ex parte application contains the standard or normal orders for an extension of the powers of liquidators.  From this order it is clear that the respondents were now empowered to defend or institute legal proceedings of a civil nature, criminal proceedings, urgent legal proceedings and the recovering of outstanding accounts.  To offer compensation made to the company debtor and to accept payment or to grant an extension of any debtor.  To compromise or admit any claim and to make arrangements with creditors.  Furthermore the order entailed that they could carry on or discontinue any part of the business of the company insofar as it may be necessary for the beneficial winding-up thereof.  They were also empowered to sell any movable and immovable property of the company by public auction, public tender or private contract.  Without this order being extended they would not have been entitled to continue trading the business to engage services of the employees and pay their salaries and similar practical requirements which impact on the normal day to day running of the business. 

At the end of January 2016 when the liquidators took control of Xing Xing Farming there existed a major threat to the farming operation in that there was virtually no water on the farm as the borehole supplying water “have but dried up”.  It was common cause that there was a serious drought during this period.  Without this order being granted the liquidators would not have been entitled to procure water from the neighbouring farms.  A further three boreholes were drilled on the property.  Chicken feed had to be procured to the value of approximately R350 000 per week.  This feed supply could be maintained only on arrangement for delayed payment of accounts.

There is no further cash available to pay the outstanding amount of R847,218.60 due to Satinsilk Investments (Pty) Ltd the supplier of the feed.  A successful battery operation requires stringent disease control which in turn means substantial amounts have to be paid for medicine.

The total outstanding debts amount to R2,483,661.10.  The amount of overdue debtors is growing and becoming a major concern.

A veterinarian surgeon, Dr. P.W. Smith, attended to the farm and his report as attached to the answering affidavit.  It is his opinion that the pullets are to be transferred to laying houses as soon as possible.  He is further of the opinion that if the chickens are not placed out soon there will be serious consequences, amongst which will be vices such as egg-eating and cannibalism.  A buyer, Ascend Investment Holding (Pty) Ltd, was identified who is willing to purchase the movable assets, vehicles and equipment, the hatcheries and livestock for an amount of R4,1 million.  In view of the dire consequences of not feeding the chickens the sale is thus necessary and must be executed eminently.

The respondents also caused the valuation of the assets of Xing Xing Farming which was also done by a duly appointed registered appraiser which is also attached to the

answering affidavit.  According to this valuation report a value of R4 779,770.00 is established as a forced sale value.

It is accordingly the respondents’ contention that the application to rescind Louw J’s order is misconceived as it will render it impossible for the respondents to continue with the farming operation.

It was also argued that the legal duties and obligations of the liquidators and specifically section 353 of the Companies Act, 61 of 1973, provides that the effect of a voluntary winding-up on the status of a company is that it shall from the commencement of the winding-up cease to carry-on its business except insofar as it may be required for the beneficial winding-up thereof.

 

The applicant’s application for the stay of the sale is also ill-conceived.  I cannot find that the liquidators are not fulfilling their duties in terms of the law.  The whole nature of liquidation applications call for forced sales. This kind of operation that have to be run by liquidators that do not have expert knowledge of chicken battery farming has a huge duty in terms of the law to keep the business running but obtain a willing buyer as soon as possible. No valuation by the applicant is attached to his papers.  No reasons are set out why a chartered accountant would be in a position to give a valuation of the assets.  It is conceivable that a chartered accountant could give a total of the assets, but not of a forced sale value.  In view of Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd  [1984] ZASCA 51; 1984 (3) SA 623 (AD) at 634H there is nothing to gainsay the valuation as attached to the answering affidavit of the respondents and the court must accordingly accept the respondents’ version.  If this test is applied to the facts in this application it was submitted that the applicant was not entitled to any relief.

This application is fatally flawed, misconceived and does not pass muster of the Plascon-Evans principles and therefore I make the following order:The application is dismissed with costs.

 

Schickerling NO and Another v Chickenland (Pty) Ltd t/a Nando's (22712/2016) [2016] ZAGPPHC 208 (15 April 2016)

Business rescue-business rescue practitioner-knowledge of cancellation of franchise agreement

The applicant, the business rescue practitioner, is applying on an urgent basis that a mandatory interdict be granted in favour of the second applicant in terms of which the respondent is ordered to fulfil all its obligations towards the second applicant in terms of the provisions of the franchise agreement entered into by and between the second applicant and the respondent on 1 December 2009.  The second applicant offers reciprocal performance of its obligations in terms of the same agreement.  This mandatory interdict is pending the outcome of the pending action between the second applicant and the respondent under case number 3880/2015.  The applicants are also requesting that the respondent be ordered to notify all suppliers to the second applicant to continue to supply the second applicant with product in

terms of the provisions of the agreement on the same cash on delivery basis as before.

The first applicant is the business rescue practitioner of the second applicant Ashraf Alli Gani Investments CC. The respondent is franchisor of a chain of fast foods commonly known as Nando’s. The second applicant and the respondent on 18 February 2009 concluded a franchise agreement. This agreement was subject to an option for the renewal of the contract which was to expire on 30 November 2014.

The option to renew the franchise agreement is before this court under case number 3880/2015 and set down for trial on 31 October 2016. On 28 November 2014 the members of the second applicant adopted a resolution to commence business rescue proceedings. On 19 February 2015 the applicant proposed a business rescue plan which was adopted.

In the business rescue plan the following proposal was adopted:

“PROPOSALS

Pending the outcome of the action under case number 3880/15 the company will continue to trade under the name and style of a Nando’s branded franchise from the current leased premises and undertake to substantially comply with the franchise agreement concluded with Chickenland (Pty) Ltd, to the extent that it is consistent with the adopted business rescue plan.

That the practitioner may appoint any individual from time to time, at his sole discretion, to attend the training provided in terms of the franchise agreement with Chickenland (Pty) Ltd.”

On 24 February 2015 the attorney of the respondent gave a written undertaking which reads as follows:

“(1) Pending finalisation of the declaratory issued under case number 3880/15, Ashraf Alli Gani Investment CC (in business rescue) (“the franchisee”) and Chickenland (Pty) Ltd (“the franchisor”) will comply with their respective contractual obligations provided for in the franchise agreement concluded between the parties on 18 December 2009, as if the franchise agreement was still in existence.

(2) It is recorded that the franchisor agrees hereto in order to avoid unnecessary costs in litigation and does not hereby waive any rights that it has flowing from the expiry of the franchise agreement on 30 November 2014, alternatively determination thereof by the franchisor.

(3) Insofar as supply of products through Vector Logistics (Pty) Ltd and other suppliers are concerned, the continued supply thereof is dependent upon the franchisee meeting its obligations with such suppliers.”

Paragraph 17.1.2 of the franchise agreement reads as follows:

“17.1 Notwithstanding any other provision contained in this agreement it is agreed that this agreement shall terminate, at the FRANCHISOR’s sole and absolute discretion at any time subsequent to the happening of any of the events listed below, notwithstanding that there may be a delay between the event and the exercising of the election in the event that the FRANCHISEE:-

17.1.1 …

17.1.2 fails to timeously pay the franchise, royalty, marketing fee or any other amount due and owing by it to the FRANCHISOR; …”

The royalties were not paid but were paid in on 30 March 2016 reflected at the respondent on 31 March 2016.

 The applicant has accordingly not established a prima facie right entitling him to continue to operating the franchise after the valid termination thereof.

I am satisfied that on the common cause facts the royalties were only paid after the date set out in the cancellation letter.  I am satisfied that clauses 17.1 read with 17.1.2, the cancellation clause, constitutes a lex commissorio.  Thus even if the respondent is an unwilling party to the current de facto and de jure situation it does not affect the lex commissisorio and the cancellation.

I find that the letter of cancellation came to the knowledge of the first applicant.  I find that it should have come to his notice as the business rescue practitioner who was responsible to ensure payment of these royalties.  This is further enunciated by section 140 of the Companies Act. 

The only question the court must then ask itself is whether the adopted business rescue plan can in any way impact on the cancellation of the agreement.  The applicant could not provide any section in the Companies Act, or any case law, that the mere fact that there are business rescue proceedings impacting on the cancellation.  Upon a perusal of the sections in the Companies Act relating to business rescue no such prohibition could be found.  When interpreting the Companies Act the Act must be interpreted and applied in a manner that gives effect to the purpose of section 7.  It could be argued that the cancellation does not conform to the purpose of section 7(d).  Section 7(d) reads as follows:

“reaffirm the concept of the company as a means of achieving economic and social benefits”.

The application is dismissed with costs.

Absa Bank Ltd v Van Zyl NO and Another (35976/2015) [2016] ZAGPPHC 247 (22 April 2016)

Application for sequestration-nulla bona-sheriff did not execute the writ of execution-application dismissed-only return that was filed, was signed by Mr Barkhuizen-On Mr Barkhuizen's own version he was never duly appointed as a deputy sheriff and never had the authority to fulfil the duties of a deputy sheriff.

The applicant applied for the provisional sequestration of the Doornbult Trust which conducts farming operations in the North West Province. The applicant bank instituted an action against the trust which resulted in an order during November 2011 for payment of approximately R2,5 million to the applicant. All attempts to appeal the order were unsuccessful.

During August 2014 a writ for attachment of movable property was obtained and according to the applicant a Sheriff of the High Court was instructed to execute

same. According to the applicant the return of the Sheriff was one of nulla bona and it was on the basis of this alleged deed of insolvency which the applicant based its application for sequestration. In the alternative it was submitted that the trust is factually insolvent.

I shall deal first with the issue of the alleged deed of insolvency. On behalf of the respondent it was submitted that the writ of execution relating to movables was not executed by a Sheriff of the High Court, that the applicant has consequently failed to prove a deed of insolvency on the part of the respondent with the result that the application should be refused.

It is necessary to say a little more about the execution process in this matter. On behalf of the applicant it was stated that the writ of execution was duly executed by the Sheriff, Mr B. Mosikili. According to the first respondent, who is one of the trustees of the trust, the writ was never executed by Mr Mosikile. He stated that on 3 February 2015 Mr H Barkhuizen of the office of the Sheriff of Schweizer Reneke came to the farm on which the farming operations are conducted. He was apparently armed with the writ of execution relating to the movables of the trust. In the return, under the hand of Mr Barkhuizen, he stated, inter alia,  that he served the document personally on the first respondent and also stated that after a proper investigation he could not find any assets for the outstanding amount. He then stated the following: "Hereby I submit a nulla bona fide." The reference to a "nulla bona fide" is, on the face of it, support for the statement of the first respondent that Mr Barkhuizen did not really know what he was supposed to do on the farm. He clearly also did not ask the first respondent to point out sufficient disposable property to satisfy the judgement. That much is evident from the return itself.

The second, and perhaps biggest problem relating to the execution of the judgement, is the fact that it appears that Mr Barkhuizen was not a duly appointed Sheriff or deputy sheriff of this court. In the answering affidavit the first respondent disputed the legality of the nulla bona return. He stated that Mr Barkhuizen had never lawfully been appointed as Sheriff or deputy sheriff of either the Magistrate's Court or the High Court. He could consequently not have lawfully executed the judgement against the trust. As such, the trust did not commit the deed of insolvency upon which the applicant relied to prove its entitlement to sequestrate the trust.

The application is dismissed with costs.

 

Oelofsen NO and Another; In re: Oelofsen NO and Another v Bamboo Rock 1215 CC and Others (8949/16) [2016] ZAGPPHC 245 (21 April 2016)

Liquidators-ordered to pay costs de bonis propriis-omitted to divulge information to the court -uberrimae fides

Ex parte applications-material facts not disclosed-de boniis cost s awarded

The applicants are joint provisional liquidators of the insolvent estate, Tradewell Investments (Pty) Ltd (Tradewell). About 26 days before the liquidation of Tradewell four immovable properties were transferred from Tradewell estate to Bamboo Rock. This was the catalyst of the liquidator's ex parte application who sought a caveat be

registered over all four properties and instituted an action to set aside the said dispositions.

It is contended by the liquidators that no exchange of funds took place for the disposition of the properties. However, the first respondent states that the disposition was conducted in terms of a contract that was concluded between it and Tradewell even though no bonds were registered over the properties.

The first respondent submits that on 28 October 2013 it sold two properties to Tradewell for R7000 000.00 (seven million) excluding vat. Tradewell developed a Sectional Title Complex known as River View on these properties purchased. According to the sale agreement, between the first respondent and Tradewell, provision was made for the purchase price to be paid by means of the transfer of selected units, in River View, to the seller, the first respondent.

The first respondent submits that to the best of its knowledge this sale agreement was transmitted to the first applicant on 27 January 2016 by the attorneys responsible for the transfer of the properties, Van Den Berg Attorneys. That being the case the first respondent contends that the sale agreement was in the hands of the applicant's when the ex parte order was sought. It is further contended, that the transfer of the units, in terms of the sale agreement, took place on 6 November 2015.

It is common cause that at the time that the applicant's launched their ex parte application they were well aware of the sale agreement and its contents.

The first respondent has persisted with the submission that the sale and transfer was in the ordinary course of business. Further, when the applicant's brought their ex parte application they had the duty of uberrimae tides  in presenting all the material facts, the terms of the sale agreement and together with a copy thereof before the court, as these were essential to consider for the decision to grant or not to grant the order sought.

There is one crisp issue before me and I am guided by the dictum in National Director of Public Prosecutions v Basson (2002) 2 All SA 255 at para [21]:

"[21] Where an order is sought ex parte  it is well established that the utmost good faith must be observed. All material facts must be disclosed which might influence a court in coming to its decision, and the withholding or suppression of material facts, by itself, entitles a court to set aside an order, even if the non-disclosure or suppression was not wilful or ma/a fide (Schlesinger v Schlesinger 1979 (4) SA 342 (W) at 348E - 349B)."

In addition to these paragraphs is the applicant's reply to the first respondent's contention that material facts were not placed before the presiding officer who heard the ex parte application, this the sale agreement was received by the applicants, that it was 'evident'  that more than the purchase price was paid for sale, in that over and above the transfer of the units, an amount of R2 703 000.00 was 'allegedly' paid as 'a partial payment'.

Further, that in their replying affidavit they allege that the contents of the agreement were brought to the attention of the presiding officer and ' disclose (d) the contents thereof to the above Honourable Court, in my founding affidavit'. That the contents

of the sale agreement will be in dispute and this was the reason why a copy was not attached for the ex parte application.

In dealing with this matter, I am of the view that the applicants have conceded that they did not attach the sale agreement in the ex parte application as the contents thereof were going to be in dispute in an action to be instituted and as such was not provided to the presiding officer at the ex parte application.

Was it a material document that the presiding officer required to make an informed decision in granting of the order that was made? From the first applicant's own averments the contract was alluded to in the form of what Paul Moolman claimed and it was also stated that the contents of the agreement were brought to the attention of the presiding officer at the hearing. What I am not able to discern from the papers, is the applicant's disclosure on the papers of the contents of the agreement in the founding affidavit as submitted by the applicants in their replying affidavit, especially so in respect of the manner of the payment of the purchase price.

“On an examination of the facts, the date of sale, the terms of the sale agreement, especially as regards the manner of the payment of the purchase price, the date of the opening of the sectional title and the date of transfer of the units, all these point towards, to my view, an ordinary sale agreement in the course of the business of the first respondent.”

[24] The applicants themselves found it relevant to make a cursory mention of the 'claim' of the sale agreement and when called out on the said sale agreement, in this current application, they saw it fit to put up the sale agreement which was in their possession and they saw it fit to advise the court of its contents.

The aforesaid, to me, is an indication that the sale agreement and the contents thereof were recognised by the applicants as being material. The applicant's saw it fit to suppress and not disclose this material information when they moved the ex parte application. This amounts to the violation warned of in Schlesinger supra when moving an ex parte application.

The reason advanced for the suppression of the material fact of the sale agreement, that is, the contents were to be contested in an action to be instituted, is evident that the applicant acted in a mala fide manner in the non-disclosure. The presiding officer should have been apprised of all the facts in order to make an informed decision. As the matter stands before me the likelihood is that a different result would have emerged and the order sought by the applicants might not have been granted.

In the circumstances I conclude that in this instance an order setting aside the order granted by Lauw J on 9 February 2016 is warranted.

The fact that the applicants are liquidators, owing a duty to the estate that is being liquidated (Tradewell), does not give them carte blanch to flaunt the law and act in a mala fide fashion, all in the name of protecting the estate. All litigants have a duty to ensure they litigate in good faith, uberrimae fides.  If the applicant's suspected that this amounted to a dispossession and they had the necessary factors to back this up and refute the first respondent case, then what was wrong with being honest and upfront with the court?

The order of Lauw J of 9 February 2016 is reconsidered and set aside.

The applicant's, Jacobson Marthinus Oelofsen N.O and Lebogang Michael Moloto N.O, are ordered to pay the costs de bonis propriis on a party a party scale the one paying the other to be absolved.

Such costs are to include the employment of two counsels, one being senior counsel.

Osborne v Cockin and Others; Osborne v Cockin N.O. and Others (5618/2015, 6053/2015) [2016] ZAECGHC 19 (12 April 2016)

Sequestration application-benefit-trust to be sequestrated-opposed application-denial of joint venture false-order granted

Anton Pillar order-return date-court to ascertain if order was necessasry

There are before me two applications.  In case no 5618/2015 applicant seeks confirmation of a Rule Nisi in terms whereof an interim interdict relating to certain cattle was granted, together with an Anton Piller Order relating to documentation and the furnishing of information in respect of the cattle. 

In case no 6053/2015 applicant seeks an order for the provisional sequestration of a Trust known as the Cockin Trust, IT/304/2007.  Because the issues in both applications are to a certain extent interlinked they were argued together, with Mr. Smuts S.C. appearing for the applicant in both applications and Mr. Paterson S.C. appearing for the various respondents in each case.

Applicant describes himself as a director of companies and a businessman.  He avers that during 2013 he and a certain Shaun Cockin who was trading as Cockin Partners, entered into an oral agreement in terms of which, inter alia, applicant’s cattle would graze on farms owned or controlled by Shaun Cockin; their progeny would be divided equally between them on a date to be agreed; Shaun Cockin would account to applicant on a monthly basis for the cattle and their progeny; and applicant would retain ownership of the cattle.

For purposes of convenience I will refer to Shaun Cockin hereunder as “Shaun” as this is the manner in which he was referred to throughout the various affidavits filed in the two applications.

Pursuant to the above agreement applicant delivered a large number of cattle to Shaun.  An audit done on 28 February 2014 of all the cattle under Shaun’s control confirmed that 611 cattle belonging to applicant were in Shaun’s possession.  In addition thereto applicant and Shaun entered into a written “Agreement of Joint Venture” during March 2014 in terms whereof applicant made available 281 cattle for the joint cattle farming operation and Cockin Partners made available the land for grazing, with all offspring to be divided equally between the parties to the agreement.  It was also agreed that applicant retained ownership of the cattle.  It is not in dispute that in consequence of the agreements, both oral and written, Shaun came to be in possession of 1831 cattle belonging to applicant which were distributed by him amongst various farms for purposes of grazing.

On 31 August 2015 Shaun furnished to applicant a “DM Osborne and Cockin Partners Joint Venture and Report” in which the aforesaid number of cattle in Cockin Partners’ possession was confirmed and in which it was also reported that there were “no losses”. 

[7] During mid-September 2015, however, applicant’s manager visited the various farms on which applicant’s cattle were allegedly grazing and discovered that there was in fact a significant shortfall in the number of applicant’s cattle under Shaun’s control.  In consequence of this applicant approached Shaun on 12 September 2015 with the request that he explain the discrepancies by not later than 14 September 2015. 

[8] Tragically, on 13 September 2015, Shaun committed suicide. 

[9] Thereafter, during the week of 14 September 2015, an inspection was conducted and applicant ascertained that most of his cattle were missing and could not be accounted for. 

[10] A meeting was then arranged in Cathcart on 17 September with a number of Shaun’s creditors at which an attorney, Mr. Werner De Jager, was present.  On 22 September 2015 De Jager furnished a provisional report in which he stated that his instructions were that the value of the livestock claimed against Shaun’s estate “may be as high as R25 million.”  He stated further that over and above the livestock claims “the other liabilities mentioned amount to approximately R10 million.”  He concluded that it was therefore clear that Shaun’s estate was “hopelessly insolvent.” 

[11] Indeed, on 8 October 2015, an application for the provisional sequestration of Shaun’s deceased estate was brought by a creditor, Colorado Farming CC.  According to the deponent to the founding affidavit in that matter the deceased’s estate was indebted to Colorado in the sum of R1 365 500,00 arising out of the misappropriation by Shaun of 173 head of its cattle, Colorado having entered into a similar commercial arrangement in respect of the grazing of its cattle with Shaun, as that entered into between applicant and Shaun. 

[12] On 13 October 2015 a provisional order of sequestration in respect of Shaun’s deceased estate was granted by this Court and Mr. De Jager together with Mr. Timkoe were on 20 October 2015 appointed by the Master of this Court as joint provisional trustees of Shaun’s insolvent deceased estate.

[13] In the meantime, applicant arranged for such cattle as were still on Shaun’s farms to be removed and returned to him.  As at 30 October 2015, however, 200 head of cattle covered by the oral grazing agreement and 1025 covered by the Joint Venture agreement were missing.  The value of applicant’s missing stock was approximately R11 million.  As was stated by applicant it was clear that Shaun had been involved in conducting a massive “Ponzi” scheme. 

[14] Applicant, assisted by the South African Police Stock Theft Unit, attempted to track down his missing cattle.  He managed to trace a limited number of the cattle which, so it transpired, had been sold by Shaun to other farmers despite applicant having retained his ownership thereof.  Applicant was advised by the Police,

however, that all endeavours in terms of the Criminal Procedure Act to trace the remainder of the cattle had been exhausted and that applicant should pursue other legal means to obtain redress.

[15] Applicant accordingly launched the aforementioned Anton Piller application in an attempt to seek evidence regarding the whereabouts of his missing cattle.  Applicant averred that Shaun’s widow, Marioth Cockin (to whom I shall hereinafter refer to as “Marioth”) and his son, Mark William Cockin (“Mark”) were, at the time of Shaun’s death, in partnership together with him, trading as Cockin Partners.  He averred that Cockin Partners was essentially a family concern in which Shaun, Marioth and Mark were not only father, son, mother and wife but also intimate business partners acting in furtherance of a family enterprise.  He averred further that the Cockin Trust was the alter ego of Shaun and that Shaun had utilised the Trust with the intention of diverting thereto assets which belonged to persons defrauded by Cockin Partners.

[16] In his Anton Piller application applicant cited a number of respondents, including Cockin Partners as first respondent; Marioth in her various capacities, namely, as second respondent in her capacity as executrix of Shaun’s deceased estate; as third respondent in her personal capacity and “possibly a partner of Cockin Partners”; as fifteenth respondent in her capacity as a Trustee of the Cockin Trust and as sixteenth respondent in her capacity as a Trustee of a Trust known as the Downs Trust.  Also cited was Mark in his personal capacity and “possibly a partner of Cockin Partners” and as the “duly authorised managing Trustee of the Cockin Trust and the Downs Trust.”  He was also cited as fourteenth respondent in his capacity as “Managing Trustee of the Cockin Trust.”

[17] On 2 November 2015 the application came before me in chambers and I granted an interim interdict, inter alia, interdicting and restraining the various respondents from dealing with applicant’s cattle and placing various obligations upon them to disclose information and documents relating to the cattle and, generally, to perform such acts as would assist in tracing the whereabouts of applicant’s cattle.

[18] In argument before me on the extended return day the issue largely resolved itself into a question of costs.

[19] Both counsel were agreed for present purposes that the matter fell to be determined on the basis of the following dictum of Strathern AJ in Friedshelf v Kalianji 2015 (4) SA 163 (GJ) at paragraph 67:

“In my view the test at the opposed return day or reconsideration of an Anton Piller order is whether, after considering the competing allegations and submissions on the affidavits, the applicants still make out a strong prima facie case.  In this regard the Court would not be bound to determine the matter on the basis of facts alleged by the respondent which cannot be rejected on paper, as argued in this matter by the respondent’s counsel.” 

[20] The application has been opposed only by Marioth in her capacity as second respondent and Mark in his capacity as fourth respondent.  In their respective answering affidavits both of them deny that they were ever partners with Shaun in the business conducted by him as Cockin Partners.  Mark denies further that he was

the “Managing Trustee” of the Cockin Trust.  I should mention that it became common cause that Mark was never a partner.  Both aver that they had no involvement whatsoever in Shaun’s business and that they had only limited knowledge of his business dealings with applicant and Shaun’s other creditors.  They stated that they had no knowledge at all of Shaun’s fraudulent dealings with applicant’s cattle. 

[21] Marioth stated further as follows:

“It is apparent from applicant’s founding affidavit and annexures that there is not a single piece of evidence or document which establishes that I was involved in or a party to the business conducted by Shaun with applicant and his other creditors and the allegations are baseless, reckless and unlawful.” 

[22] This averment, so said applicant in his reply based on certain documentation obtained in consequence of the aforementioned order, was dishonest and untruthful.  The document referred to, Annexure DM23, emanating from First National Bank, is a so-called “Facility Agreement” dated 19 November 2014 in terms of which FNB offered a credit facility to “Shaun Russell Cockin and Marioth Janet Cockin trading together in co-partnership under the name of Cockin and Partners.”  The offer was duly accepted “for and on behalf of Shaun Russell Cockin and Marioth Janet Cockin trading together in partnership under the name or style Cockin and Partners” and was signed at the end thereof by both Shaun and Marioth above the designation of each as “Partner”.

[23] Not surprisingly, Mr. Paterson had considerable difficulty in dealing with this issue.  He submitted that the facility agreement was only disclosed in reply and that Marioth had therefore been deprived of the opportunity of providing an explanation therefor.  He submitted that in all probability she was merely assisting Shaun as his wife.  In my view, however, this submission cannot be sustained.  If indeed there was an innocent explanation for Annexure DM23 one would have expected an application to file a further affidavit setting out such explanation, and such application would in the circumstances obviously have readily been granted.  That no such application was forthcoming speaks volumes.  The only inference to be drawn in the circumstances is that no innocent explanation exists and that applicant’s averment, to the effect that Marioth’s allegations to the contrary in her affidavit were false, is correct. 

[24] This document is, in my view, damning not only of Marioth’s denial that she was ever involved in any business conducted by Shaun but also of the denial by Mark that Marioth was a partner.  In all the circumstances Mark must have been aware of the fact that Marioth was indeed a partner and his denial of this fact is not credible. 

[25] In my view, the fact that Marioth and Mark falsely denied her membership of the partnership clearly constitutes an attempt to distance themselves and the Cockin Trust of which they are trustees as far as possible from Shaun’s fraudulent conduct.  In view of the false evidence concerning Marioth’s role in the Cockin Partnership no reliance can be placed on their evidence insofar as it seeks to rebut applicant’s averments that the businesses were closely interlinked.   In my view, as was

submitted by Mr. Smuts, this fact is sufficient in itself to justify the application for the Anton Piller order. 

[26] Applicant’s averment that Cockin Partners was essentially a family concern and that the business affairs of the ”Cockin Group” were closely interlinked also gains considerable support from a document obtained in consequence of the order, namely, DM24, prepared by an accountant, Mr. Rossouw, who provided services to Shaun, Cockin Partners, the Cockin Trust and the Downs Trust  in July 2013, for the “Cockin Group” headed “Cockin Family: Farming Enterprises Review.”  In this document Rossouw states that “the entire family enterprise is farmed through four different entities.”  As appears from his report these entities are the Cockin Trust, which is described as being a business Trust and the entity that physically conducts the farming enterprise on The Downs and Olive Grove farms in Cathcart; the Downs Trust which is a property trust that owns the Downs farm; Cockin Partners which, according to Rossouw “is operated as a sole proprietor in Shaun Cockin’s name” and which leases ground and livestock in partnership with various role players and conducts farming operations with profit shares being paid to the partners in line of the various agreements.  The fourth entity at the time was Shaun’s father, Vernon Cockin.

[27] With regard to Cockin Partners Mr. Rossouw states as follows:

“In theory this business operates completely separate to the Cockin Trust – however, in practice due to cash flow shortages, this business loans and repays cash from and to the Cockin Trust on a regular basis.  This business also runs livestock on the Downs and Olive Grove farms from time to time.”

[28] Rossouw states further in a letter addressed to Shaun and Mark on 25 November 2013 as follows:

“A Trust is a separate legal entity over which no one person has or should be perceived to have control of.  Any decisions affecting a trust must be made in accordance with the trust deed as decided upon, minuted and resolved by the board of trustees.  This is of paramount importance i.e. the paper trail for all transactions in the Trust must be there.

The one very concerning point which pops up time and time again when I look at the transactions which have passed through your Trust bank account in the 2013 financial year is the number of times that cash is transferred between the trust bank account and the other bank accounts such as Cockin Partners, M.W. Cockin etc.  This cannot happen if you want to maintain the persona of a Trust.  In theory each of these transactions would need to be approved by the trustees (which has not happened).”

[29] In my view, after a consideration of the competing allegations and submissions contained in the various affidavits including that of applicant’s farm manager Mr. Vigne to the effect that at an inspection during February 2015 he observed 30 of applicant’s heifers on Mark’s farm, The Downs, the applicant has made out a strong prima facie case justifying the launching of the interdict and the Anton Piller

application.  He is accordingly entitled to an order confirming the rule nisi together with the costs of the application.

[30] I turn to consider the application for the provisional sequestration of the Cockin Trust under Case no 6053/2015.  Cited as first and third respondents in this application are Mark and Marioth Cockin in their capacities as trustees of the Cockin Trust.  The independent trustee of the Cockin Trust, Mr. Andrew Smith, is cited in his capacity as such as fourth respondent.  The aforementioned Mr. Werner De Jager is cited as second respondent in his capacity as a trustee of Shaun’s insolvent deceased estate.

[31] Section 10 of the Insolvency Act 24 of 1936 provides as follows:

“If the court to which the petition for the sequestration of the estate of a debtor has been presented is of the opinion that prima facie –

(a)   The petitioning creditor has established against the debtor a claim such as is mentioned in subsection (1) of section nine; and

(b)   The debtor has committed an act of insolvency or is insolvent; and

(c)   There is reason to belive that it will be to the advantage of creditors of the debtor if his estate is sequestrated, it may make an order sequestrating the estate of the debtor provisionally.”

[32] In Firstrand Bank Ltd v Evans 2011 (4) SA 597 (KZD) Wallis J, as he then was, stated as follows at paragraph 27:

“Once the applicant for a provisional order of sequestration has established on a prima facie basis the requisites for such an order the court has a discretion whether to grant the order. There is little authority on how this discretion should be exercised, which perhaps indicates that it is unusual for a court to exercise it in favour of the debtor. Broadly speaking it seems to me that the discretion falls within that class of cases generally described as involving a power combined with a duty.  In other words where the conditions prescribed for the grant of a provisional order of sequestration are satisfied then, in the absence of some special circumstances, the court should ordinarily grant the order. It is for the respondent to establish the special or unusual circumstances that warrant the exercise of the court's discretion in his or her favour.”

[33]  As was stated in Provincial Building Society of South Africa v Du Bois 1966 (3) SA 76 (W), referred to with approval in Kalil v   Decotex (Pty) Ltd and Another  1988 (1) SA 943 (AD), in an opposed application for a provisional order of sequestration the necessary prima facie case is established only when the applicant can show that on a consideration of all the affidavits filed a case for sequestration has been established on a balance of probabilities.

[34] Much argument was addressed to me by both counsel with regard to whether applicant had discharged the onus upon him.  In the view that I take of the matter it is not necessary to deal with much of the argument that was presented because, in my opinion, the matter can be determined on a relatively narrow basis. 

[35] As appears from what I have set out above with regard to the Anton Piller application it not disputed that Shaun unlawfully sold applicant’s cattle, valued at approximately R11 million.

[36] As also appears, especially from the report of Rossouw, there was a considerable degree of intermingling of the various “Cockin group” operations.  In my view, having regard to certain evidence relating to a joint attempt by Shaun and Mark to sell the entire Cockin Family Farming Enterprise to applicant and to the affidavits of Messrs. Ranger and Knott, Mark clearly had full knowledge of Shaun’s business operations. 

[37] Furthermore, it is clear that Marioth was in fact a partner with Shaun in the Cockin Partners business, that she dishonestly attempted to distance herself from such involvement, and that Mark made common cause therewith. 

[38] It is against this background that evidence relating to certain lucerne sales which came to the fore in consequence of the Anton Piller order becomes of great relevance.  It is not disputed that certain sums of money transferred by Shaun to the Cockin Trust were recorded as “lucerne sales.”

[39] In his affidavit in support of the respondents’ opposition to the application the aforementioned Rossouw stated, with regard to the annual financial statements of the Cockin Trust, that he was satisfied that at the time they were signed that they were a “fair and correct presentation” of the financial records and information presented to him by Shaun and Mark.  He then stated that subsequent to Shaun’s death, however, “information has come to light that this information supplied to me was not always complete and correct resulting in an understatement of Shaun’s liabilities due to his fraudulent activities.  I have also been made aware of an overstatement of the value of livestock reflected on the 2015 financial statements of the Cockin Trust due to incorrect livestock quantities being supplied to me by first respondent and an overstatement of lucerne sales in the Cockin Trust due to misallocations due to incorrect narrations on the bank statements provided to me.”

[40] Rossouw then proceeds to state further as follows:

“An amount of R1 895 000 has subsequently been identified by the first respondent (Mark) as having been misallocated to lucerne sales in the 2015 year and as such will need to be corrected by crediting the loan account with this amount.  As a result the correct lucerne sales that were debited against the loan account reflects at a nett value of R678 640 in the 2015 year...  A further similar adjustment to the lucerne sales in the current financial year has been identified by the first respondent equal to an amount of R998 000 which has been credited to the loan account...”

[41] No explanation has been forthcoming from any of the respondents as to how the misallocation of nearly R3 million in respect of lucerne sales could have been made and it is difficult to understand in the absence of any rational explanation on what innocent basis such a misallocation could have come about.  This was not a mere “overstatement” of the lucerne sales as Rossouw would have it.  Two very large amounts were deliberately allocated to lucerne sales in two different financial years.  It is common cause that Shaun did not grow nor sell lucerne.  His only source of income was from his cattle speculating business and, at the time that such misallocation was made, he was “hopelessly insolvent”.  Rossouw simply reallocated

this amount to Shaun’s loan account but there is no explanation at all as to why he did so.  As was submitted by Mr. Smuts, in the absence of any such explanation the reasonable inference arises that this was a false representation of the source of money which flowed from the deceased to the Trust.  In my view therefore, applicant has established, prima facie, that such money must be the proceeds of the unlawful sale of cattle not belonging to Shaun. 

[42] In this regard applicant states pertinently that the Cockin Trust is indebted to him in respect of his livestock that was fraudulently sold by Shaun and the proceeds of such sales having been deposited in the Cockin Trust accounts.  In the circumstances I am of the opinion that applicant has established, prima facie, that he is a creditor of the trust.  Furthermore, there is no suggestion that the Cockin Trust is able to pay such money to applicant in order to compensate him for such unlawful sale.  I agree with the submission by Mr. Smuts that in the light of the misallocation of the sum of R2 893 000 to false lucerne sales in the financial statements of the Trust, when the only source from which the insolvent deceased could have transferred this money was the unlawful sale of cattle, the Trust prima facie, cannot pay its debts and is insolvent.

[43] It will, in the circumstances, be in the best interest of creditors if the estate of the Trust is sequestrated and its affairs fully investigated.

[44] In my opinion therefore applicant has prima facie satisfied the requirements of section 10 of the Act.

[45] The following orders will issue:

Case no: 5618/2015

a.    The Rule Nisi is confirmed.

b.    The second and fourth respondents are ordered to pay the costs of the application jointly and severally, the one paying the other to be absolved.

Case no: 6053/2015

1.    The estate of the Respondent Trust is placed under provisional sequestration in the hands of the Master of this Honourable Court;

2.    The said Mark William Cockin, Marioth Janet Cockin and Andrew Oliver Smith, nomine officio in their capacities as the Trustees of the Cockin Trust and Werner de Jager nomine officio in his capacity as trustee of the insolvent deceased estate of Shaun Russell Cockin, be and are hereby called upon to show cause, if any, to this Court at Grahamstown on 17 May 2016 at 10h00 or as soon thereafter as the matter may be heard, why:

2.1         a final Order of Sequestration of the respondent estate should not be granted;

2.2         that the rule nisi be served upon Mark William Cockin, Marioth Janet Cockin, Andrew Oliver Smith and Werner de Jager personally;

2.3         That a copy of this Order be published once in the Daily Dispatch newspaper; and

2.4         That a copy of this Order be served:

2.4.1      On the employees of the respondent by affixing a copy thereof on a notice board to which the employees of the respondent have access inside the respondent’s premises, alternatively by affixing a copy of the order at the front gate of the respondent’s premises; and

2.4.2     On the South African Revenue Services in East London. 

3.    The Costs of this application shall be costs in the sequestration.

Shanmugam v Peter N.O and Others (11638/2015) [2016] ZAKZDHC 16 (20 April 2016)

Liquidators-joint liquidators-two of three signed contract-contract invalid

The applicant seeks an order interdicting the liquidators of CKT Express CC (in liquidation) from selling or transferring an immovable property to a third party purchaser pending the determination of an action which he has instituted and in which he seeks transfer of the property to him.

The basis of the applicant’s claim is that he purchased the property from the liquidators in June 2012, that the agreement is still valid and that they are precluded from selling the property to someone else.

The liquidators contend that the agreement relied on by the applicant was invalid ab initio, that it was in any event cancelled by reason of a breach by him and, further, that his claim for transfer of the property has become prescribed.

 

The facts are briefly as follows. The close corporation owns the property in question, which is described as Portion 6 of Erf x. It was placed in final liquidation in February 2012 and the first and second respondents were appointed as liquidators on 21 February 2012. They decided to sell the property to the applicant and signed a written agreement of sale on 5 June 2012. The agreement was not signed by the third respondent, who was appointed as the third liquidator on 4 June 2012.

On 2 July 2012 a firm of attorneys gave the applicant written notice that he was in breach of the agreement in that he had not made certain payments and on 16 August 2012 they notified him of the cancellation of the agreement. Most of the money which he had paid towards the purchase price was refunded to him, which he says he accepted under protest. The property was sold by public auction nearly three years later, on 18 June 2015. The successful bidders were the applicant’s sister and one Ryan Naidoo, whose wife was the sole member of the close corporation in liquidation. That agreement was cancelled on 16 September 2015 due to a failure by the purchasers to comply with their obligations. On 3 November 2015 the property was again sold by public auction.

During the confirmation period a higher offer was accepted by the liquidators and the property was sold by private treaty. On 3 November 2015 the applicant instituted an action in this court in which he seeks an order for the transfer of the property to him,

against a tender to perform all his obligations as purchaser in terms of the agreement of 5 June 2012.

On 23 November 2015 he launched an application to interdict the transfer of the property pending the final determination of the action to which I have referred, and a rule nisi together with an interim interdict was granted on that day. The matter then came before me on the opposed roll, with the applicant seeking confirmation of the rule nisi and the respondents its discharge.

Counsel for the applicant submitted that because he seeks an interdict pendente lite the test is whether the applicant has shown a prima facie right, though open to some doubt, and whether the balance of convenience favours him. There are no material disputes of fact on the papers and the matter is essentially one of law. I deal firstly with the issue relating to the validity of the agreement.

In terms of section 2(1) of the Alienation of Land Act  no alienation of land shall be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority. It is by now trite that corporate entities, being unable to act other than through natural persons, cannot give written authority to their representatives, and that therefore the written-authority requirement does not apply when a functionary of a company  signs a contract for the sale of land.It was held in Northview that the principle also applies to close corporations and that a member, authorised as such to sign, does not require written authority to sign such a contract. Where a member however authorises a third person to enter into such a contract the authorisation must be in writing.

In the present matter the agreement was not signed by a member of the close corporation, but by two of the three liquidators. Counsel submitted that section 2(1) nevertheless finds no application as the liquidators were not agents as contemplated in the section and their actions were those of the close corporation. This seems to me to be correct. It has been held that when a liquidator performs the functions of the former board of directors his acts are the acts of the company.[5] And in AMS Marketing[6] the court referred with approval to Gower[7]who says when a liquidator concludes a contract he does so on behalf of the company. It follows that when there is only one liquidator he does not need written authority to sign a contract for the sale of land as he is in the same position as a duly authorised functionary of the company. If one of several liquidators signs such a contract the only question is whether he was authorised to do so, as in the case of a functionary of a company.

In terms of section 282 of the Companies Act of 1973 liquidators are required to act jointly in performing their functions.  The third respondent was appointed as a joint liquidator the day before the other two signed the agreement. It is not disputed that he had not authorised them to do so. Counsel for the applicant submitted that as a matter of probability he must have become aware of the agreement and ratified it. But there is no evidence that he did. And if he became aware of the agreement there is no evidence that he knew it required to be ratified. It would appear that none of the liquidators realised at the time that when the first and second respondents signed the agreement the third respondent had already been appointed. In any event, the effect of the third respondent’s affidavit, read with the answering affidavit deposed to by the fourth respondent, is that he did not authorise the conclusion of the agreement, nor did he ratify it. There is nothing on the papers to gainsay this, and it must of course be born in mind that the agreement was not in existence for long as it was cancelled

on 16 August 2012. It follows in my view that the agreement of 5 June 2012 was invalid as the two liquidators who signed it could not bind the close corporation without the authority of the third liquidator.

 

[9] I deal briefly with the two alternative points relied on by the liquidators. The first is that even if the agreement was validly concluded it was later cancelled as a result of a breach by the applicant of his obligations. Counsel for the applicant accepted in argument that the applicant was in breach and that the cancellation would have been proper if it was duly authorised. It appears from the papers that it was only authorised by the two liquidators who had signed the agreement, and not by the third respondent. Their answer to this is that the cancellation was ratified by the third respondent, who signed the subsequent sale agreement together with the other liquidators. Counsel for the applicant contested this on the basis that he may not even have known of the cancellation. This is a double-edged sword for the applicant. If the sale to the applicant did not come to the notice of the third respondent then he could not have ratified it. If it did come to his notice then it is inherently improbable that he would have co-signed a new agreement without knowledge of the cancellation of the first agreement. And if he signed the new agreement with knowledge of the cancellation of the first one then he ratified the cancellation. It seems to me that if the agreement on which the applicant relies was validly concluded then its subsequent cancellation was valid.

 [10] The second alternative point relates to prescription. The liquidators contend that any claim that the applicant may have had for transfer was extinguished by prescription. They say the letter of cancellation was sent to him on 16 August 2012, and any claim he may have had for transfer arose not later than the date on which he received that letter. His summons was issued on 3 November 2015. He does not dispute that this was more than three years after his claim arose. The only basis on which he contends that his claim has not prescribed is that the fourth respondent told him that the liquidators would not rely on the breach notice and acknowledged their obligation to transfer the property to him. She disputes this and says she in any event had no authority to speak for the liquidators as she was only asked to perform certain administrative tasks. It is true that in his affidavit the applicant refers to the fourth respondent as the agent of the liquidators. That does not constitute evidence that she was their agent or authorised to bind them, and there is no other evidence that she was. It follows in my view that any claim which the applicant may have had for transfer of the property was extinguished by prescription.

[11] The applicant has in my view not made out a prima facie case, not even one open to some doubt. It seems plain that the agreement on which he relies was invalid for want of authority, was in any event cancelled because he failed to comply with his obligations, and he waited longer than the prescriptive period to try and enforce his claim for transfer.

The rule nisi is discharged with costs, including those reserved on 23 November and 8 December 2015 and those occasioned by the employment of senior counsel.

Newton Global Trading (Pty) Limited (Under Business Rescue) v Da Corte[2015] JOL 34899 (SCA)

Business rescue proceedings –– Resolution taken by company to commence business rescue –– Whether failure to comply with section 129(3) and (4) of the Companies Act 71 of 2008 renders proceedings a nullity –– Resolution to commence business rescue has not been set aside – Standing of business rescue practitioner appointed on strength of resolution – Standing of business rescue practitioner cannot be challenged on ground of non-compliance with procedural requirements – section 129.

The appellant conducted a business of chrome processing. Experiencing financial difficulty, the appellant, by resolution dated 31 May 2013, commenced voluntary business rescue, under supervision, in terms of section 129(1) of the Companies Act 71 of 2008.

In July 2014, the appellant launched an urgent application against the respondent, seeking an order interdicting the latter, or any person in his employ, from entering the appellant’s business premises and prohibiting them from removing any mineral related material or any tangible object from it, or from operating any part of the chrome processing plant.

Opposing the application, the respondent raised two preliminary points. The second of those related to the appellant’s alleged lack of locus standi  to institute the application proceedings due to an alleged failure by the appellant to comply with the provisions of section 129 of the Act. It was contended that the consequence of such failure was that the business rescue proceedings were a nullity and the appointed business rescue practitioner, who deposed to the founding affidavit, lacked the necessary standing to act on behalf of the appellant. The court below upheld that point, and dismissed the application.

Held that section 129 deals with business rescue proceedings. Section 129(3) sets out the steps to be taken within five business days after a company has adopted and filed a resolution, and section 129(4) prescribes the steps to be taken after appointing a practitioner. In the present matter, the notice of the appointment of the business rescue practitioner, in terms of section 129(4)(a), appeared to have been filed three days out of time. The respondent’s objection therefore was that the appellant had failed or omitted to publish a copy of the notice of the practitioner’s appointment as business rescue practitioner, as is required in terms of section 129(4)(b), and omitted to publish a notice of the resolution to commence business rescue in terms of section 129(3)(a) – and accordingly did not strictly comply with the relevant provisions of the Act. Section 129(5) provides that if a company fails to comply with any provision of subsections (3) or (4) its resolution to begin business rescue proceedings and place the company under supervision lapses and is a nullity. Referring to case law, the Court held that as long as the resolution to commence business rescue has not been set aside, the standing of the business rescue practitioner appointed on the strength of that resolution, cannot be challenged on the ground of non-compliance with the procedural requirements set out in section 129 of the Act. The fact that the respondent was not an “affected person” could not alter that position.

The appeal was therefore upheld, and the respondent’s point in limine was dismissed.

Gihwala and others v Grancy Property Limited and others[2016] JOL 35573 (SCA)

Company law – Company directors – Orders of delinquency in terms of section 162(5)(c) of the Companies Act 71 of 2008 – Directors found to have been guilty of gross abuses of their positions, in circumstances where they owed a fiduciary duty to ensure that company complied with terms of an agreement – Orders of delinquency justified

wo actions, brought by the first and second respondents, were consolidated in the high court. The Court upheld most of the claims of the first respondent (“Grancy”). It gave judgment against the first and second appellants for payment of certain amounts. In addition it ordered the first and second appellants to disclose books of account and financial records relating to a related entity’s affairs, and ordered that a statement of account be rendered to Grancy with regard to a business venture. Lastly, in terms of section 162(5)(c) of the Companies Act 71 of 2008, the Court declared the first and second appellants to be delinquent directors. Before the present Court, lay an appeal by the appellants, and a cross-appeal by Grancy against the dismissal of two of its monetary claims.

The background facts were as follows. In February 2005, the parties concluded an agreement in terms of which an English businessman befriended by the first appellant, would through Grancy, acquire a one-third share in a company (SMI), which would in turn acquire a 58% stake in another company. To that end Grancy provided funding of around R3,5 million. Disputes arose when the first and second appellants refused to recognise that Grancy was entitled to a shareholding in SMI or any information about its business or how its money had been invested.

Held that the issues for determination on appeal were whether the 2005 agreement was breached and, if so, in what respects; whether Grancy had financial claims arising out of the breach of the agreement; whether those claims were precluded by the rule in Foss v Harbottle; whether Grancy was entitled to orders against the first and second appellants in terms of section 424 of the Companies Act 61 of 1973 or section 77(3) of the Companies Act 71 of 2008; whether Grancy was entitled to an order for access to the books and accounting records of SMI and for the rendering of an account in relation to its investment; whether section 162 of the 2008 Act was unconstitutional and, if not, whether the high court was correct to make orders of delinquency in relation to the first and second appellants.

The Court found that from the outset, there were clear breaches of the agreement. The Court examined each of the monetary claims, and upheld the cross-appeal in regard to one of the two claims which had been dismissed in the court below. It also varied the high court’s orders in respect of some of the other monetary claims. In so doing, the Court held that the relevant claims were not excluded by the rule in Foss v Harbottle.

Finally, the court upheld the orders of delinquency in relation to the first and second appellants, finding that they had been guilty of gross abuses of their positions as directors of SMI, to which they owed a fiduciary duty to ensure that it complied with the terms of the agreement concluded with Grancy.

Voltex (Pty) Limited trading as Voltex Bramley v Mnguni[2016] JOL 35898 (GJ)

Provisional sequestration – Application for final order

In terms of a contract concluded between a close corporation and the applicant, the latter sold and delivered goods to the close corporation on credit. Subsequently, the applicant concluded a written contract with the respondent wherein the respondent bound himself as surety and co-principal debtor for and on behalf of the close corporation. When the close corporation failed to honour its obligation to repay the debt, the applicant sued it and the respondent. The action was not defended, and default judgment was obtained. About 10 months later, the applicant issued a writ of execution against the respondent. The sheriff was unable to execute the warrant as he found the premises locked.

As a result, in May 2014, the applicant instituted proceedings in this Court against the respondent where it asked, inter alia, for the estate of the respondent to be provisionally sequestrated. A provisional order was granted, and the applicant now sought final sequestration.

In opposing the application, the respondent contended that the close corporation was not insolvent, but, on the contrary, was solvent and highly profitable.

Held that the sheriff’s return simply showed that the respondent could not be located. It was not shown that there was no disposable property to satisfy the judgment. The applicant failed to show that the applicant was factually insolvent. It failed to show that the respondent would not be able to relinquish the debt should his estate be returned to him. It had also failed to show that a final order sequestrating the respondent’s estate would be to the advantage of all creditors.

The order provisionally sequestrating the respondent’s estate was set aside, and the application for an order finally sequestrating the respondent’s estate was dismissed.

Engen Petroleum Limited v Plastic Brown Containers (Pty) Ltd (11693/2014) [2016] ZAKZDHC 20 (10 May 2016)

Application for final winding up-opposed- Section 345(1)(a) of the old Companies Ac requires that a statutory letter of demand be sent to collect the outstanding debt.

The application for the liquidation of the respondent arose as a result the applicant’s claim for goods sold and delivered to the respondent for an amount of R513 000, which remained unsatisfied. The respondent was a cash customer of the applicant and was allocated customer account number 10077812. A special procedure was followed for purchasing goods from the applicant. The respondent would place orders telephonically to the applicant. The whole process would then be captured in an electronic management system of the applicant, which calculated the amount of the order and then issued a unique order number for that particular order. The details thereof would be then communicated to the respondent who would in turn make payment in advance and provide proof of payment to the applicant’s credit controller. The credit controller would then authorise the release of the paid up goods from the applicant’s warehouse. This authorisation would simultaneously raise an invoice by a system known as SAP and an instruction to the applicant’s logistic and transport

service provider, Ensign Shipping & Logistics, to release the goods to the respondent. The respondent would then either elect to collect the goods or the applicant would deliver the goods at the designated address.

The applicant avers that during February 2014 it dismissed one of its employees, Goodman Morapane, a Sales Manager, for attempting to perpetrate a fraud against the applicant for the benefit of the respondent. On or about January 2013 to March 2013, the respondent, with the assistance of Morapane, was able to obtain the release of lubricants to the value of R513 000 without making any form of payment to the applicant.

Morapane manipulated the applicant’s system by instructing one of the applicant’s employees at its depot, Synod Ngubane, to bypass the applicant’s electronic computer management system by manually authorising the release of the goods from an Ensign warehouse on the pretext that the respondent’s customer account number was still in the process of being opened, hence it could not be captured on the electronic system. Morapane had informed Ngubane that upon the allocation of the customer account number the transaction would be captured on the SAP electronic system and the respondent would be invoiced. The very same goods were collected by the respondent from Ensign, which signed for them, but were never paid for them. Morapane continued with the same modus operandi a number of times.

According to the applicant, in December, being its financial year end, its stock on hand is balanced and any missing stock would have been discovered by the applicant. On the 19th of December 2013, Morapane gave Ngubane the respondent’s customer account number and order numbers to raise an invoice for the respondent in respect of the goods already collected by the respondent. This ensured that the applicant’s stock balanced. The delivery notes were attached to the founding affidavit indicating the various collections of ordered goods from the applicant by the respondent in annexure D1 to D6 of the founding affidavit.

The respondent’s defence is that it had no dealings with the applicant concerning the claim of R513 000. It denies that it is indebted to the applicant and that it is unable to pay its debts. It also denies any illicit or collusive dealings with Morapane. It avers that there were bona fide dealings between itself and Morapane’s Close Corporation, Golden Rewards, which had invoiced it for R550 620 for goods sold and delivered. It avers that it settled the entire amount due to Golden Rewards, save for R120 000 which was set off as a result of goods sold by the respondent to Golden Rewards.

It is trite that for a final winding up order, the applicant must show on a balance of probabilities that the debt is not bona fide disputed on reasonable grounds. The question which needs to be determined first is whether the applicant is a creditor of the respondent. Section 345(1)(a) of the old Companies Ac requires that a statutory letter of demand be sent to collect the outstanding debt. When a company receives such a statutory demand, its options are limited to settling the amount owed, giving security for the claim to the satisfaction of the creditor or showing on balance of probabilities that the alleged indebtedness is disputed on bona fide and reasonable grounds. Furthermore, if the company neglects to adequately respond to the Section

345(1)(a) letter of demand, it runs the risk of being deemed to be unable to pay its debts and ultimately face a liquidation on its deemed insolvency.

If the company elects to dispute the alleged indebtedness, it must send a detailed response within the three weeks referred to in Section 345(1)(a)  regarding the basis upon which the alleged liability to pay is disputed. It is therefore imperative upon the respondent:‘to allege facts which, if proved at a trial, would constitute a good defence to the claims against the company’.

The onus rests on the applicant to show that on a balance of probabilities that the debt is not bona fide disputed on reasonable grounds.

[20] In my consideration of whether the applicant has discharged the onus on a balance of probabilities, I have holistically considered all the facts in this matter. The respondent has tried to raise factual disputes, which I find to be not fundamental factual disputes

[21] I am satisfied that the applicant has discharged the evidentiary burden resting upon it. The non-responsive attitude of the respondent to the calls for payment leaves a lot to be desired. It was only when the applicant brought the application for provisional liquidation that it expressly stated for the first time that it had dealings with Morapane. If payment had been made to his entity, this should have been disclosed timeously to the applicant.

I make the following order:

(a) That the provisional order granted by this court on the 15th of September 2015, be hereby confirmed.(b) That the costs hereof be in liquidation.

Burco Civils CC v Stolz and Another (26201/15) [2016] ZAGPPHC 350 (19 May 2016)

Directors-personal lability- section 424 of the Companies Act, 1973 (Act No. 61 of 1973) (the Companies Act), alternatively in terms of section 218 (2) of the new Companies Act.

[1] The Applicant seeks an order declaring the respondents personally liable for claim which creditors are unable to recover in the liquidation of Caveoplant (Pty) Ltd (Caveoplant).

[2] It is common cause that Caveoplant has been placed under final winding up in the hands of the Master of the High Court. Caveoplant is indebted to the applicant in the amount of R1 066 196-80. Despite notices in terms of section 345 of the Companies Act, 2008 (Act No. 71 of 2008) (the new Companies Act), Caveoplant failed and or refused to pay the amounts owed to the applicant. As a result, an application for the liquidation of Caveoplant was launched.

[3] The applicant, in anticipation of the liquidation, launched this application to protect its interests in terms of section 424 of the Companies Act, 1973 (Act No. 61

of 1973) (the Companies Act), alternatively in terms of section 218 (2) of the new Companies Act.

[4] The applicant alleges that, as a result of the material misrepresentations by the respondents, more specifically that the first respondent was authorized to act on behalf of Caveoprox (Pty) Ltd (Caveoprox) and that Caveoprox had sufficient funds to pay the applicant and other creditors, were they to let their equipment to Caveoprox, the applicant concluded an agreement, believing it to be with Caveoprox, in June 2014, in terms of which Caveoprox required plant from applicant to be let to EC Mining.

[5] The applicant alleges that it was advised by the first respondent, subsequent to the conclusion of the agreement, that Cavoeprox name have changed to Caveoplant with a new VAT number 4920266402, and that all suppliers, including applicant, were to ensure that the details were correct on all the invoices as from 1 August 2014, and that no invoices will be paid unless the correct details were on the invoice. The first respondent assured that it is only a name change as management and all services will still be done by herself.

The issue is whether the respondents contravened the provisions of section 22(1) and 76 (3) of the Companies Act, and if so, whether, in terms of section 218, the respondents are liable to the applicant for the loss suffered as a result of that contravention.

[37] Section 22(1) provides as follows:

“22. Reckless trading prohibited. – (1) A company must not carry on its business recklessly, with gross negligence, with intent to defraud any person or for any fraudulent purpose.”

[38] Section 76(3) provides as follows:

“76. Standards of directors conduct. – … (3) Subject to subsections (4) and (5), a director of a company, when acting in that capacity, must exercise the powers and perform the functions of director –

(a)  In good faith and for a proper purpose;

(b)  In the best interests of the company; and

(c) With the degree of care, skill and diligence that may reasonably be expected of a person –

(i) Carrying out the same functions in relation to the company as those carried out by that director; and

(ii) Having the general knowledge, skill and experience of that director.”

[41] The respondents have demonstrated a lack of skill, and may have been out of place and chose an inappropriate route for the purpose of commencing their business operations. However, that lack of aptitude or their ineptitude, in my view, cannot be said to have amounted to using the business to incur obligations recklessly grossly negligent, as interpreted in our law. In my understanding, to carry on business recklessly or grossly negligent is to carry on business by conduct which evinces a lack of any genuine concern for its prosperity, which conduct has an adverse effect on the creditors’ claims against the company.

[46] Against this background, I am unable to find that the respondents contravened section 76 (3) of the Companies Act.

[49] From the facts as set out in the papers before me, in my view, the real and proximate cause of the inability of Caveoplant to pay its creditors which include the applicant, is the financial difficulties experienced by EC Mining. In my view, the failure of Caveoplant was as a result of external forces, and not internal forces and more specifically it was not as a result of the conduct of the respondents. There is nothing to indicate that the respondents were not attentive to the affairs of Caveoplant.The application is dismissed with costs.

2001 Management Services (Pty) Limited and Another v Anappa (88079/14) [2016] ZAGPPHC 353 (20 May 2016)

Business rescue proceedings-liquidation in terms of section 132 (2) of the Companies Act 71 of 2008 (the Act)-application by creditor forleave to institute liquidation proceedings against the applicant-granted

The business rescue practitioner, on behalf of the first applicant, applied for an order that the business rescue proceedings of the applicant be terminated and that the applicant be placed in final liquidation in terms of section 132 (2) of the Companies Act 71 of 2008 (the Act). As regards costs, it is prayed that the costs of the business rescue practitioner in the business rescue proceedings of the applicant including all disbursements and legal costs incurred by him, be costs in the winding-up of the applicant.

[2] The second applicant, the Bank, applied for leave to intervene in the application, and an order that the business rescue proceedings of the applicant be terminated and the applicant be placed in final liquidation in terms of section 132 of the Act. In the alternative, the second applicant seeks an order granting them leave to institute liquidation proceedings against the applicant in terms of section 133 of the Act and an order placing the applicant into final liquidation in the hands of the Master, and that the costs of the application, including costs of intervening, be costs in the liquidation.

[3] Before me, the business rescue practitioner did not pursue its motion, opting instead to support the application by the Bank. His interest and his submissions, only related to the costs. His prayer was that the court order, in relation to costs, be that the costs incurred by him in employing attorneys and counsel, in either defending or bringing interlocutory applications pending the winding-up application, are to be regarded as administration costs in the winding up and further that the question of his fees are to be reserved. The Bank did not support this stance of the business rescue practitioner. In its view this court cannot be asked to deal, in the main with costs related to the application brought in the matter before another court in another province, and as regards fees the Bank’s view is that this must be left up to the liquidator to decide which claims are to be admitted and which are not to be admitted.

[4] The Bank only pursued its alternative motion before me.

[5] In his founding affidavit in support of the application brought by first applicant, Thomas Hendrick Samons (Samons) says he deposed to the affidavit in his capacity

as the business rescue practitioner appointed as such on 11 July 2014 in terms of a resolution dated 1 July 2014, passed by the sole director of the applicant, Walter Frederick Stephen Ward (Ward), in terms of the provisions of section 129 of the Act. The applicant commenced business rescue proceedings on 7 July 2014. He took effective control of the applicant on 11 July 2014.

[42] In my view, to position the court to exercise its discretion judiciously, in considering the leave sought, it is incumbent upon an applicant who seeks such leave of the court, to take the court into his/her confidence and disclose to the court the legal proceedings which he or she intends initiating. This is to allow the court to determine whether the facts as set out may stand as valid grounds to sustain such recourse. It will also assist the court to ensure that the process of seeking leave is not abused for ulterior purposes.

This will also assist the court to determine whether it is just and equitable, under the circumstances, to exercise its discretion in favour of the leave sought. In my view, liquidation is an appropriate recourse, and it is just and equitable in this case, that it be engaged as a process to deal with the affairs of the applicant.

For these reasons I make the following order:

1. The intervening creditor, The Standard Bank of South Africa Limited, is granted leave to institute liquidation proceedings against the applicant, 2001 Management Services (Pty) Limited.

2. The costs of the application, including the costs of intervening, are costs in the liquidation.

 

Constantia Insurance Company Limited v Master of the High Court, Johannesburg and Others (23968/2015) [2016] ZAGPJHC 121 (13 May 2016)

Claims-investigating of-after being proved-a liquidator to a creditor’s substantiation of its claim in terms of s.45(3) of the Insolvency Act   24 of 1936 -liquidator and Master ordered to accept more information

 This is an application for declaratory orders to the effect that the Master of the High Court has no power to consider a response by a liquidator to a creditor’s substantiation of its claim in terms of s.45(3) of the Insolvency Act   24 of 1936 , in response to a liquidator’s report to the Master under that section, after the second meeting of creditors of Protech Khuthele Property Investments (Pty) Ltd (in liquidation), when the Master is considering whether to reduce or disallow the creditor’s proven claim.

he background and the parties’ competing contentions is as follows. The applicant is a creditor in the insolvent estate for which the second and third respondents (“the liquidators”) have been appointed as provisional liquidators. At the second meeting of creditors, the applicant proved three claims against the Protech estate. Thereafter, on 14 January 2015, the liquidators reported to the Master in terms of s.45(3) of the Insolvency Act that they disputed the applicant’s claim, and advanced reasons for so disputing the claim.

[3] The Master, as she was obliged to do under s.45(3)   of the   Insolvency Act if  she were minded to reduce or disallow the applicant’s claim, on 5 February 2015 afforded the applicant an opportunity to substantiate its claim and, to that end, provided the applicant with the  report, and gave the applicant an opportunity to respond to it. This the applicant did on 19 February 2015. The Master then, without there being express provision for it either in the Insolvency Act, or in the Companies Act 61 of 1973, or the winding-up regulations made under that Act, provided the liquidators with a copy of the applicant’s substantiation of its claim, and afforded the liquidators an opportunity to respond to it.

[5] This the liquidators did by furnishing a voluminous response two months later on 24 April 2015. In it, according to the applicant, they raised new matter that had not been dealt with before by either the applicant or the liquidator. The Master then invited the applicant on 7 May 2015 to deal with this second document emanating from the liquidators,in turn the liquidators no power to accept the invitation

[6] The applicant’s argument focusses on the scheme of the Insolvency Act and sections 44 and 45 in particular. It submits that the principle of audi alteram partem (hereafter “audi”) does not apply in the present matter, for two reasons. First, the liquidators are not persons who are potentially affected by the decision to be taken by the Master; and second, in any event, audi does not permit the filing of a document that the Act does not permit. It contends that sections 44 and 45 of the Act envisage a speedy procedure to get the winding up process under way, and rely amongst others, Caldeira v The Master and Another for this proposition. The applicant submits that there is no provision, certainly not expressly and not by implication either, that warrants any further exchanges between the parties. The Master must make her decision on the basis only of the liquidators’ initial report and the applicant’s response to it, according to its submission.

Audi alteram partem   and legitimate expectation

[15] The liquidators’ argument is an extension of the classic presentation of the audi principle in our law, developed as it was in Administrator, Transvaal and Others v Traub and Others. The development in Traub was the infusion into our pre-constitutional law of the concept of “legitimate expectation.”Before this infusion, the state of our law on audi was that where a statute empowered a public official to make a decision of a quasi-judicial nature that could potentially affect the rights or liberties of an individual prejudicially then, unless audi was expressly or by implication excluded, the individual had the right to be heard.

[19] As Cameron, J points out legitimate expectation in our law may take the form of so-called procedural legitimate expectation, or substantive legitimate expectation. In the case of the former, the expectation is that one will be heard before a potentially prejudicial decision will be taken. In the case of the latter, the expectation goes further; it is not only that one will be heard before the potentially prejudicial decision will be taken, but also that the decision will be favourable.[26] At present then, our law acknowledges the former, not the latter.

[22] The advent of the Constitution and PAJA initially raised the question whether the common law of the review of administrative action continued to exist side by side

with the new constitutional administrative law; and the Supreme Court of Appeal held that it did.[29] The Constitutional Court rejected this notion, explaining that there is one system of law, all aspects of which derived its force from the Constitution.[30]

[23] It is thus now well accepted that s.33 of the Constitution incorporates and expands common law principles of administrative law. It is also accepted that PAJA is the indicated vehicle for the enjoyment and enforcement of the constitutional entitlement to just administrative action.[31] There is thus one system of law; and therefore one system of administrative law which, leaving aside the principle of legality, is currently codified in PAJA. The principle ofaudi alteram partem, and with it its embodiment of fair process, reposes within PAJA. In my view it is therefore unhelpful to go down the path of enquiring whether s.45(3) of the Insolvency Act excludes audi alteram partem.

[33]The point here is that the legislature did not intend for the decision under s.45(3) to represent a final and definitive determination of the validity of the creditor’s claim. That is why the Master, and not the High Court, decides the issue.

[34]Moving on to the facts of this case, the first observation is that the liquidators do not suggest in their answering affidavits that this case has any special feature that places it outside of the ordinary, vanilla, objection in terms of s.45(3). They argue[33]that the audi principle applies and that therefore they had the right to place the additional material before the Master. But they do not deal with the fact that the section already gives them the right to place material before the master.

[35] They argue also that if the creditor had the last say in the matter, “ … a creditor would be able to lie, misstate facts or present false evidence in substantiation of a claim and the liquidator would be powerless to inform the Master of the true state of affairs.” But they have not made out a case that in this instance any of these hypotheticals find application.

[36] Finally, they refer to regulation 3 of the Insolvency Act regulations provision is made in regulation 3(2) for the trustee in similar circumstances to “…submit his remarks thereanent to the Master in writing…”. In argument counsel for the liquidators conceded, in my view correctly so, that these regulations do not apply to winding-up of close corporations. The winding-up regulations apply, and as has been pointed out above, they do not provide for a liquidators’ reply.

[37] It is understandable why there is a distinction. The minister likely considered that the administration of an insolvent estate of an individual is likely to be less comprehensive than that of a company or close corporation. That would explain why language such as “remarks” is used. If the same procedure were employed in winding-up, the issue may have become substantially overburdened. Already in the present matter one saw the liquidators’ reply come to 394 pages, whereas the liquidators’ initial report was 17 pages, and the applicant’s substantiation, 19 pages.

[38] In sum, in my view s.45(3) envisages a procedure that is procedurally fair, all things being equal. In this case, no facts or circumstances are disclosed that rendered the procedure there laid down procedurally unfair. It follows that the

applicant is entitled to the relief it sought in the amended draft order handed up during the hearing.

[39] There remain the questions of the authorisation sought by the liquidators, and the applicants request that they pay costs de bonis propriis. I accept that the liquidators have not in their answering affidavit explained why authorisation should be granted. But this is a case in which the facts speak for themselves. The legal issue involved is novel, so both counsel conceded; and the submissions made on behalf of the liquidators were lucid and helpful. I will therefore grant the liquidators the authorisation sought; the estate is to pay the costs of the application. Costs of two counsel were warranted; the liquidators employed only one, but Silk.

[40] In the result I make the following order:

(a) The second and third respondents are authorised to oppose the application.

(b) The Master of High Court is obliged to decide the second and third respondents’ application to expunge the applicant’s proved claim in Protech Khuthele Property Holdings (Pty) Ltd (in liquidation), in terms of section 45(3) read with section 158 of the Insolvency Act, 24 of 1936,regulation 18 of the Regulations for the Winding-Up and Judicial Management of Companies promulgated in Government Notice R2490 of 28 December 1973, and section 339 of the Companies Act, 61 of 1973, based on the second and third respondents’ report to the Master dated 14 January 2015 and the applicant’s substantiation dated 19 February 2015, but to the exclusion of the further document delivered by the second and third respondents on 24 April 2015.

(c) The second and third respondents are ordered to pay the costs of this application in their representative capacity, including the costs occasioned by the employment of two counsel.

Masilo N.O and Others v Betterbridge (Pty) Limited (37/2015) [2016] ZASCA 73 (25 May 2016)

Prescription – extinctive prescription – delay in completion – debt object of claim filed against company in liquidation – claim withdrawn after ‘admitted to proof’ under s 44 of the Insolvency Act 24 of 1936. Whether prescription delayed in terms of s 13(1)(g) of the Prescription Act 68 of 1969.

 This is an appeal from the North Gauteng Division of the High Court, Pretoria (Unterhalter AJ) rejecting a special plea by the defendants that the plaintiff’s claim had prescribed. Instead, it upheld the plaintiff’s contention that the completion of prescription was delayed in terms of s 13(1)(g) of the Prescription Act 68 of 1969.

[2] The facts and the reasoning of the learned judge are set out fully in his judgment, which has now been reported sub nom as Betterbridge (Pty) Ltd v Masilo & others 2015 (2) SA 396 (GP). I agree fully with the judgment. No purpose will be served by rehashing the facts or repackaging the reasoning.

[3] Before us the appellants raised a new argument, one that the court a quo was not asked to consider. They now contend that if a claim is withdrawn before the

presiding officer at the meeting of creditors decides whether to admit or reject the claim, as in this case, the claim will not be the ‘object of a claim filed’ as s 13(1)(g) envisages. This is because a creditor, who wants the benefit of a delay in the completion of prescription, must participate in the process provided for in s 44 of the Insolvency Act until completion. A creditor, who lodges a claim with the Master, and then withdraws it from the adjudication process provided for in s 44, does not make his claim the object of a claim filed against the company in liquidation. And therefore cannot gain the benefit of the delay of prescription. A withdrawn claim, so it is contended, is as good as no claim at all.

[4] There is no merit in this contention. Apart from the fact that this defence was not pleaded in the rejoinder, it is apparent from the judgment of the court a quo that the impediment becomes operative as soon as the claim is ‘admitted to proof’. This occurs when the presiding officer at the meeting of creditors accepts the claim as filed in terms of s 13(1)(g); the adjudication process need not be completed. This is precisely what happened in this case.

[5] Mr Pye properly accepted that if the court a quo was correct in coming to this conclusion, the appeal could not succeed. The appeal must therefore fail.

[6] I make the following order:‘The appeal is dismissed with costs.’

Golden Dividend 339 (Pty) Ltd and Another v Absa Bank Limited (569/2015) [2016] ZASCA 78 (30 May 2016)

Business Rescue-Application to set aside business rescue proceedings – creditors have a direct and substantial interest – non-joinder of creditors is fatal to the relief sought in the application.

The issue in this appeal is whether the non-joinder of creditors in an application to set aside a business rescue plan is fatal to the granting of that application.

[2] The appellant, Golden Dividend 339 (Pty) Ltd (the company) concluded a written loan agreement on 05 April 2016 with the respondent, Absa Bank Ltd (the bank)  in terms of which the bank advanced an amount of approximately eight million to finance the acquisition of immovable property by the company. A first mortgage bond was registered over the immovable property as security for the loan. During January 2012 the company stopped making regular payments in terms of the loan agreement and as at 07 July 2013, an amount of approximately six million together with interest was outstanding. On 25 July 2013 the bank, through its attorneys served a letter of demand on the company in terms of s 345 of the Companies Act 61 of 1973 (read with clause 9 of schedule 5 of the Companies Act 71 of   2008  as amended), (the 2008 Act) but the company, for a period of three weeks after service of the letter, neglected to pay the amount due.

[3] On 27 August 2013 the company’s board of directors passed a resolution placing it in business rescue proceedings in terms of s 129(1)(b) of the 2008 Act on the basis that it was financially distressed. Pursuant thereto the second appellant, Mr Etienne Naude (Naude) was appointed as a business rescue practitioner for the company. On 4 October 2013 Naude published a business rescue plan and a business rescue

meeting was held on 8 October 2013 in terms of s 151 of the 2008 Act. The meeting however did not proceed due to inadequate notice and the plan was withdrawn and a new plan was published. At that meeting the majority of the creditors voted to extend the 25 day period provided for in terms of s 150(5) of the 2008 Act for the publication of the plan and the meeting was rescheduled for 22 November 2013. At that next meeting the plan was adopted by a majority vote of 89 per cent of creditors with voting rights.

[4] On 21 November 2013 the bank launched an application, served on Naude on 5 December 2013 (later amended on 15 December 2013) seeking an order declaring the business rescue plan published by the second appellant on 11 November 2013 unlawful and invalid.

Roering NO and Another v Mahlangu and Others (581/2015) [2016] ZASCA 79 (30 May 2016)

Company law – Enquiry in terms of ss 417 and 418 of the Companies Act 61 of 1973 – summons to attend – application to set aside summons – abuse of process – what constitutes – fact that the issues canvassed may overlap with issues in pending or contemplated civil litigation not as such a ground for inferring abuse

The SCA unanimously set aside the High Court’s decision. It pointed to the importance in the public interest of an enquiry into the affairs of a company that has failed. Such enquiries are essential to ascertain what went wrong and who was responsible for it. The fact that civil litigation may flow from the enquiry, or be contemplated, or have been instituted by the liquidators, does not provide grounds for regarding the enquiry, or the summoning of a witness, as an abuse. There were plainly grounds for the liquidators and the commissioner to believe that Ms Mahlangu could give relevant evidence about the dealings between 3P Consulting and the Department. This was confirmed by her lawyers, who described her as a key witness in the case. In the result the summons stands and Ms Mahlangu will be obliged to give evidence in terms of it at the enquiry.

Palala Resources (Pty) Ltd v Minister of Mineral Resources And Energy and Others (479/15) [2016] ZASCA 80 (30 May 2016)

Companies-Deregistration -Mining and minerals – Companies – interpretation and application of s 56(c) of the Mineral and Petroleum Resources Development Act 28 of 2002 and s 73(6A) of the Companies Act 61 of 1973 – deregistration of a company which is the holder of a mineral prospecting right does not result in that company irretrievably losing that right – subsequent restoration of company’s registration having the legal effect of retrospectively reviving the lapsed prospecting right.

The Supreme Court of Appeal (the SCA) upheld an appeal against an order of the Gauteng Division of the High Court Pretoria. The court a quo had granted a review application brought by Hectocorp (Pty) Ltd, the third respondent, to set aside the decision of the Minister of Mineral Resources and Energy, the first respondent, who had upheld an appeal against a decision of the Acting Director-General in her department. The Acting Director-General had overruled the decision of the regional manager who had refused to accept the appellant’s (Palala Resources (Pty) Ltd)

application for the renewal of its prospecting right for gold and pyrite on a designated prospecting area on the farm Malamulele 234 LT in Limpopo. The basis for the regional manager’s decision was that Palala’s prospecting right had lapsed due to Palala’s deregistration as a company. Palala’s deregistration on 16 July 2010 and its restoration to the company register on 13 September 2010 was common cause.

The crisp issue for determination was whether a mineral right which has lapsed due to the deregistration of a company which holds that right is revived when that company is restored to the register. Related to this question was the relationship between the provisions of section 56(c) of the Mineral and Petroleum Resources Development Act 28 of 2002 and section 73(6A) of the old Companies Act 61 of 1973, which was in force at that time. In referring to its decision in Newlands Surgical Clinic (Pty) Ltd v Peninsula Eye Clinic (Pty) Ltd 2015 (4) SA 34 (SCA), the SCA held that such a lapsed right is revived upon restoration, by virtue of section 73(6A). The SCA held further that there is no tension between section 56(c) and section 73(6A) and that the two sections can co-exist as they refer to two different situations at two different points in time.

The appeal was accordingly upheld and the matter was remitted to the Minister for her decision on Palala’s application to renew its prospecting right.

Swart v Starbuck and Others (20785/2014) [2016] ZASCA 83 (30 May 2016)

Insolvent person-Claim by insolvent on behalf of his insolvent estate for the payment of damages by his trustees in terms of s 82(8) of the Insolvency Act 24 of 1936 – section 82(8) does not find application where the trustees sold immovable properties of the estate prior to the second meeting of creditors – sale of the immovable properties of the estate valid and enforceable – claim for damages dismissed.

Insolvent person-has a reserved right in certain circumstances with rgards to his estate

This appeal concerns an action brought by the appellant (the insolvent) against the first to third respondents, the trustees of his insolvent estate (the trustees), for the payment of damages allegedly caused by them in the administration of his estate. The matter was heard by Strijdom AJ in the Gauteng Division of the High Court, Pretoria, who dismissed the claim with costs, but granted the insolvent leave to appeal to this court.

[2] The estate of the insolvent was provisionally sequestrated by order of the Gauteng Division, Pretoria, on 4 October 2005 and a final order of sequestration was granted on 1 November 2005. On 24 January 2006 the trustees were appointed as the provisional trustees of the insolvent estate by the fourth respondent (the master). Their appointment as final trustees followed on 16 November 2006.

[3] At the time of his provisional sequestration the insolvent was the registered owner of certain immovable properties known as portions 5, 8 and 13 of the Farm Doorndraai 2A, Registration Division KR, Limpopo Province (the properties). Portion

5 had been granted water rights for agricultural purposes in terms of s 21(a) of the National Water Act 36 of 1998.

[10] In his pleadings the insolvent contended that the trustees did not, on 1 December 2005, have the necessary authority (or rather capacity) to accept the offers to purchase made by the trust, as they had not yet been appointed as provisional trustees. Nor had the powers of the trustees, when they purported to accept the offers to purchase, been extended in terms of s 18(3) of the Act to authorise them to sell the properties. Also that at 1 December 2005, the trustees had not been granted any authorisation by the master in terms of s 80bis of the Act, to sell the properties to the trust. Therefore, according to the insolvent, the sale of the properties and the resultant transfer thereof to the trust were irregular and constituted maladministration of his estate. He further alleged that the sale of the properties had to take place in terms of s 82(1) of the Act and as the trustees had failed to follow the prescripts of this subsection, they were liable in terms of s 82(8), to make good to the insolvent estate twice the amount of the loss which the estate had sustained as a result of their irregular dealing with the properties.

[11] In their plea, the trustees denied that on 1 December 2005 any agreements of sale were entered into by them in their capacities as trustees of the insolvent estate, but admitted that the first respondent signed and thereby accepted the offers to purchase on that date, ‘subject to the permission of the master being granted and by implication their formal appointment by the master.’ They further pleaded that, on 31 January 2006, they were granted authority in terms of s 80bis of the Act to sell the properties by way of private treaty. Therefore, the trustees contended, the properties had been validly transferred to the trust on 14 June 2006, which transfer took place after the master had granted the necessary authorisation in terms of s 80bis of the Act. They accordingly denied any maladministration on their part and disavowed liability for the payment of any damages.

[12] The court a quo, in essence, held that the trustees had been granted the necessary authorisation by the master in terms of s 80bis of the Act to sell the properties to the trust, and that compliance with s 82 of the Act was accordingly not required. Therefore the action was dismissed with costs.

[13] In evaluating the insolvent’s claim it has to be borne in mind that he is an unrehabilitated insolvent who would, save for the exceptions mentioned in s 23 of the Act (which do not apply in this instance), not have had locus standi to institute legal proceedings in his own name. However, as appears from the particulars of claim, the insolvent sought an order compelling the trustees to pay damages to his estate caused by their alleged maladministration of the estate. Our law has recognised that in certain circumstances an insolvent has locus standi by virtue of his or her real interest in the administration of the estate, to institute a claim on behalf of his insolvent estate. See Mears v Rissik, MacKenzie NO and Mears’ Trustee 1905 TS 303 at 305; Muller v De Wet NO & others 1999 (2) SA 1024 (W) at 1029D-1030H. Whether or not the insolvent had locus standi in this case is unnecessary to decide, for I will assume, without deciding, that he did.

[14] Turning to the insolvent’s cause of action, I must confess that I have some difficulty in appreciating the legal basis of the claim. As recorded above, the insolvent’s case on the pleadings appears to be that the sale of the properties and the transfer thereof to the trust were ‘irregular’, constituting maladministration of his

estate, entitling him to claim damages on behalf of the estate from the trustees. In the heads of argument filed on his behalf and in argument on appeal counsel for the insolvent expanded on this submission by contending that the agreements in terms of which the properties were sold were in fact void ab initio. However, as I understood the argument on his behalf, the insolvent did not seek to attack the validity of the transfer of the properties and have the parties restored to the status quo ante, but only to recover damages for and on behalf of the insolvent estate.

[15] According to the insolvent’s pleadings and the written heads of argument filed on his behalf on appeal, his cause of action was based squarely on s 82(1), read with s 82(8), of the Act. He contended that, in view of the absence of a valid authorisation by the master in terms of s 80bis of the Act, the sale of the properties had to take place in terms of s 82(1), in such manner and upon such conditions as the creditors may direct at their second meeting, failing which, the properties had to be sold by public auction or public tender. As the trustees had sold the properties in contravention of s 82(1), they were, in terms of s 82(8) of the Act, liable to make good to the estate twice the amount of the loss which the estate may have sustained as a result of their dealing with the properties in contravention of s 82(1). That this was the basis of the insolvent’s cause of action is borne out by the emphatic statement in his heads of argument, that ‘the case is based on s 82(8) as read with s 82(1) of the Act’.

[16] At the hearing of the appeal, counsel for the insolvent, however, attempted to change course by pinning his colours to the mast of a delictual claim for damages, based on a breach of their fiduciary duties by the trustees in disposing of the properties without the necessary authorisation by the master. As I understood the adapted cause of action, it was not based on s 82(8) as read with s 82(1) of the Act, but s 82(8) was invoked in order to recover twice the amount of the loss which the estate had allegedly suffered due to the breach of their fiduciary duties by the trustees. I should mention that, even on a liberal reading, the pleadings do not disclose a delictual claim advanced along these lines.

[17] In my view, both the insolvent’s original cause of action based on s 82(8), read with s 82(1) of the Act, and the more recently adopted delictual cause of action based on the breach of a fiduciary duty by the trustees, are misconceived and devoid of any merit. At the outset, it is clear that both causes of action depend, inter alia, upon the absence of a valid authorisation by the master for the sale of the properties. However, as recorded earlier, the master did on 31 January 2006 extend the powers of the trustees by authorising the sale of the properties in terms of s 80bis of the Act. This authorisation was granted by the master after the trustees had been appointed as provisional trustees. The granting of permission in terms of s 80bis of the Act is clearly an administrative act which has legally valid consequences until such time as it is set aside. See Oudekraal Estates (Pty) Ltd v City of Cape Town & others [2004] ZASCA 48; 2004 (6) SA 222(SCA) para 14. It is common cause that no application had been made to set aside the s 80bis authorisation granted by the master. It accordingly stands as a legally valid authorisation and on this basis alone the insolvent’s claim had to fail.

[18] Returning to the cause of action as originally pleaded, it is clear from the wording of s 82(1) that it deals with the sale of property of an insolvent estate after the second meeting of creditors, in circumstances where the trustee sells the property in a manner or on conditions contrary to those directed by the creditors at

their second meeting, or, absent such direction, sells the property other than by public auction or public tender. Section 82(1) has no application in a case such as the present where the sale of the properties had taken place prior to the first meeting of the creditors. When the present sales took place there were obviously no directives given by creditors at a second meeting that the trustees had to comply with, nor were the trustees bound, to sell the properties by public auction or public tender. They were perfectly entitled to sell the properties, having been duly authorised thereto by the master in terms of s 80bis of the Act.

[19] In Cronje NO & others v Hillcrest Village (Pty) Ltd & another [2009] ZASCA 81; 2009 (6) SA 12 (SCA), this court dealt with an analogous situation where the liquidators of a company had sold the company’s property prior to the general meeting of the company’s creditors. Streicher JA, writing for the court, said the following at para 22:

‘Section 82(1) of the Insolvency Act deals with the sale of property after the second meeting of creditors and is not applicable to the auction of WKP’s [the company in liquidation] property. The auction sale was a sale authorised by the Master in terms of s 386(2B) of the Companies Act [the equivalent of s 80bis of the Act] before a general meeting of WKP’s creditors had been convened. The court below therefore erred in considering the section to be of application in respect of the auction sale.’

The present matter similarly did not concern a sale of property after the second meeting of creditors and therefore ss 82(1) and 82(8) did not find application.

[20] It follows that the insolvent’s claim, whether based on s 82 of the Act or a delictual claim as belatedly contended for, fell to be dismissed. It is in any event telling that this action, which the insolvent purportedly instituted for the benefit of his insolvent estate, ie in effect for the benefit of the creditors of the estate, did not carry the support of the creditors. On the contrary, as recorded earlier, the two secured creditors whose claims represented the lion’s share of the value of the total claims against the estate, actively supported the sale of the properties to the trust. Nor did any concurrent creditor respond negatively to the circular sent by the trustees advising them of the intended sale.

[26] Neither counsel relied on nor made reference to Legator McKenna, but counsel for the insolvent set much store by the decision in Simplex (Pty) Ltd v Van der Merwe & others NNO 1996 (1) SA 111 (WLD), where Goldblatt J held that an agreement of sale concluded by trustees who had not yet been authorised to act in that capacity, was null and void and could not be ‘resuscitated by subsequent ratification either by the Master or by the trustees after receipt of the necessary authority’.

[29] The lack of authority on the part of the trustees when they (represented by the first respondent) accepted the offers to purchase, was accordingly of no legal consequence and could not somehow have served as a basis for a claim for damages against the trustees.

[30] For these reasons the appeal is dismissed with costs, including the costs consequent upon the employment of two counsel.

Nova Property Group Holdings v Cobbett (20815/2014) [2016] ZASCA 63 (12 May 2016)

Company law –  interpretation of s 26(2) of the Companies Act 71   of 2008  – provides an unqualified right of access to a company’s securities register – person’s motive for access not relevant – right of access not subject to the provisions of the Promotion of Access to Information Act 2 of 2000 (PAIA).

Rule 35 (14) – appellants failed to demonstrate that the documents sought are relevant to a reasonably anticipated issue in the main application.

The Supreme Court of Appeal dismissed the appeal by Nova Property Group Holdings Limited (Nova), Frontier Asset Management & Investments (Pty) Limited (Frontier), and Centro Property Group (Pty) Limited (Centro) (the Companies) against a judgment of the Gauteng Division of the High Court, Pretoria (the court a quo) in an interlocutory application lodged by the Companies, in which it was found that the Companies were not entitled to an order to compel Moneyweb (Pty) Ltd (Moneyweb), a publisher of business and financial news, to provide the Companies with certain documents. The Mail & Guardian Centre for Investigative Journalism NPC, commonly known as amaBhungane, was admitted as an amicus curiae in the appeal. The appeal arose from the attempts of Moneyweb and Mr JP Cobbett (Cobbett) to exercise their statutory right in terms of s 26 of the Companies Act 71 of 2008 (the Companies Act) to access the securities registers of the Companies.

Cobbett is a financial journalist who specialises in the investigation of illegal investment schemes. As part of Moneyweb’s on-going investigation into the controversial Sharemax property syndication scheme, it commissioned Cobbett to investigate and write articles for publication in Moneyweb, on the shareholding structures of the Companies which were purportedly linked to the syndication scheme. On 24 July 2013, Cobett sent a request to the Companies for access to their securities registers, in terms of s 26(2) of the Companies Act. The Companies refused him access. As a result, Moneyweb launched an application, in the court a quo, to compel the Companies to provide access to them within five days of the date of the order (the main application). For purposes of providing them with a defence in the main application, the Companies then sought to be furnished with documents referred to in Moneyweb’s founding affidavit, as well as other documents which they claimed were relevant to an anticipated issue in the main application. Displeased with Moneyweb’s refusal to provide them with the requested documents, the Companies launched an application to compel them to do so under rule 35(14) of the Uniform Rules of Court (the interlocutory application).

The court a quo compelled Moneyweb to furnish the Companies with the documents referred to in its founding affidavit, but in respect of the other documents requested, it found that the Companies had failed to prove that they were relevant to an issue in the main application. Although the court a quo had not decided the main application, it nevertheless pronounced on the interpretation of s 26(2) of the Companies Act, in deciding whether to grant the interlocutory relief sought by the Companies. It concluded that s 26(2) did not confer an absolute right to inspection of the documents envisaged in the subsection, but that the court retained a discretion to refuse to order access.

Before the SCA, the issues were twofold. Firstly, the court had to determine whether the order of the court a quo, due to its interlocutory nature, was appealable. Secondly, whether the documents sought by the Companies in the application to compel were relevant to a reasonably anticipated issue in the main application, which concerned the proper interpretation of s 26(2) of the Companies Act and, in particular, whether it confers an unqualified right of access to the securities register of a company .

In relation to the appealability of the order, the SCA held that it is appealable; in the interest of justice.

On the second issue which concerned the proper interpretation of s 26 (2) of the Companies Act, the SCA held that the section confers an unqualified right of access to the securities register of a company, and that such right is essential for effective journalism and an informed citizenry. In doing so, it rejected the Companies’ contention that the right of access is subject to the provisions of the Promotion of Access to Information Act, 2000 (PAIA) and found that the requestor’s motive for seeking access to a company’s securities register is irrelevant.

Van Zyl N.O and Others v Master of the High Court of South Africa, Western Cape Division, Cape Town and Another (7892/2015) [2016] ZAWCHC 51 (11 May 2016)

Claims-liquidators not satisfied with-Master allowed -Master taken on review-liquidators succeed

The applicants in their capacity as the duly appointed liquidators of Chelsea West (Pty) Ltd (in liquidation) seek an order in terms of Sections 151 of the Insolvency Act No 24 of 1936 and Section 339 of the Companies Act No 61 of 1973 and read with item 9 of Schedule 5 of the Companies Act No 71 of 2008 for a review of a decision by the Master of the High Court, Cape Town, in terms of which the Master refused to expunge a claim of Chester Finance (Pty) Ltd, the second respondent, in the winding-up of Chelsea West (Pty) Ltd (in liquidation).

On 17 December 2008 Chelsea West (Pty) Ltd (“Chelsea West”) was placed in provisional liquidation by this court.  The application was brought on the grounds that Chelsea West was unable to pay its debts within the meaning of Section 344(1) as read with Section 345(1) (C) of the Old Companies   Act.   On  6 January 2010 the applicants were appointed joint provisional liquidators of Chelsea West by the first respondent.  On 3 February 2009 Chelsea West was placed in final liquidation and on 21 April 2009 the applicants were appointed as final liquidators.

[11] It is not in dispute that no claims were lodged for proof at either the first or second meetings of creditors and that three special meetings were thereafter convened for the admission to proof of claims.

[12] On 15 July 2014 the applicants were requested by the second respondent to convene a third special meeting of creditors for the purpose of submission to proof of claim to be lodged by the second respondent.

[13] As the applicants were of the view that the claim by the second respondent was incorrect, the applicants instructed their attorneys, Edward Nathan Sonnenberg (“ENS”) to oppose the admission of proof of the second respondent’s claim.

[14] At the third special meeting which was presided over by Assistant Master, Mr Mabandla Dondolo (“Dondolo”) of the first respondent, both the applicants and the second respondent were allowed to advance oral argument whereafter written submissions were provided to Dondolo, by both parties.  On 5 August 2014 Dondolo admitted second respondent’s claim to proof in the amount of R2 916 006-14.

[15] The claim of the second respondent which is set out in an affidavit deposed to by Lewis Freidus, a director of second respondent, can be summarised as follows:

15.1 The claim allegedly arises as a result of monies owed and advanced by second respondent to Chelsea West prior to its liquidation in terms of a trade facility agreement (“TFA”) concluded on or about 6 May 1997;

15.2 The claim was secured by virtue of three general notarial bonds and a cession executed by Chelsea West in favour of the second respondent;

15.3 The total amount lent and advanced by second respondent to Chelsea West was in the amount of R13 205 610-18;

15.4 On 1 December 2008, second respondent obtained an order from this court in terms whereof it perfected the security held by it in terms of the general notarial bonds;

15.5 On 3 December 2008 second respondent concluded an agreement with Dreywin Finance CC (“Dreywin”) in terms whereof all the assets of Chelsea West which second respondent was authorised to take possession of in terms of the perfection order were sold to Dreywin for amount of R13 200 000-00;

15.6 On the 11th and 12th December 2008 Reichmans (Pty) Ltd (“Reichmans”) made payment to second respondent of the amounts of R2 749 516-69 and R166 489-72 respectively (“the Reichmans payments”).  It is necessary to point out in this regard that the Reichmans payments were purportedly made pursuant to the cession and were amounts that were held by Reichmans to which Chelsea West became entitled to on the termination of the facility which it had with Reichmans.

15.7 On 25 June 2013 the applicants obtained an order in this court under case number 25983/2010, (“the Binns-Ward judgments”), in terms whereof the Reichmans payments were determined not to form part of the sale agreement and were set aside as dispositions in terms of Section 29 of the Insolvency Act 24 of 1936.

15.8 On 25 April 2014 second respondent paid to the applicants the amount of R2 953 155-53 being the total amount paid in terms of the Reichmans payments. 

15.9 It is common cause that the second respondents claim is based on the repayment of such payments.

[16] In accordance with their duties in terms of Section 45 of the Insolvency Act the applicants examined the books and documents relating to Chelsea West for the purpose of ascertaining whether Chelsea West in fact owes the second respondent the amount claimed.  After studying the available books and documents relating to Chelsea West and after obtaining legal advice, the applicants formed the view that the claim by the second respondent that was admitted to proof, is not a genuine or valid claim and instructed their attorneys ENS to make application to the first respondent to expunge the claim of the second respondent.

[31] In the present matter the liquidators seek to have the claim of the second respondent expunged in terms of section 45. Section 45 (1) provides for the delivery by the officer presiding at a meeting of creditors to the trustee or a meeting of creditors to the trustees or liquidator of every claim proved against the estate. Sub-section (2) provides that the trustee shall examine the available books and documents relating to the insolvent estate for the purpose of determining whether the estate owes the claimant the amount claimed.

[54] On a consideration of the documents lodged in support of the claim I find that they are at variance with each other.  In short, the allegations made in the proof of claim affidavit do not reconcile with the facts which appear ex facie the documents lodged in support thereof.

[55] I have already referred to the agreement entered into between second respondent and Dreywin on 3 December 2008 hereinbefore.  Having considered the arguments advanced on behalf of the parties and considering the facts of the matter, I make the following findings:

1. In terms of clause 5.1 the purchase price for the assets which were the subject matter of the agreement was the amount of R 13.2 million;

2. In terms of clause 5.4 the purchase price was to be paid in full by Dreywin to second respondent on the advance date, which is defined in the agreement as the date on which the general notarial bond in favour of second respondent was registered over the assets of Dreywin (Clause 5.3.2 of the agreement)

3. On 8 December 2008 Dreywin paid the purchase price as set out in the agreement to second respondent.

4. Based on the schedule attached to the claim submitted by second respondent the second respondent’s claim against Chelsea West was reduced to an amount of R5610-18 (i.e. R13 205 610-18 less R13 200 00.00).

[77] In conclusion I find that the correct approach, as was set out in the submissions made by applicants to the presiding officer, is that the presiding officer should have decided to either:

“26.1  Admit the claim of Chesterfin against Chelsea in the reduced amount of R5610-18 as this is the extent of the claim disclosed on the papers before the presiding officer (provided that Chesterfin is in a position to persuade the presiding officer that the claim has not prescribed); or

26.2  To reject the claim of Chesterfin in order to allow it to redraw such claim in the lesser amount to be proved at a subsequent meeting of creditors, alternatively to allow Chesterfin the opportunity to establish its claims against Chelsea West at law”.

[78] I am satisfied that for the reasons hereinbefore set out, that the liquidators have established reasonable grounds of suspicion relating to the validity of the second respondent’s claim and that for these reasons, the claim should be disallowed.  I am however satisfied that second respondent has proved a claim in the amount of R5610-18.

[79] For the reasons as set out hereinbefore, I am satisfied that the ruling of Dondolo of the first respondent falls to be reviewed and set aside. Consequently the claim of the second respondent falls to be expunged and is hereby reduced to R5610-18.

[80] Accordingly, I make the following order:

1. That in terms of Section 151 of the Insolvency Act No 24 of 1936 read with item 9 of Schedule 5 of the Companies Act 71 of 2008, the decision of the Master of the High Court in terms of which the Master refused to expunge, alternatively reduce the claim of the second respondent against Chelsea West (Pty) Ltd (in liquidation) is hereby reviewed and set aside.

2. The claim of the second respondent is hereby expunged and reduced to the amount of R5610-18.

3. The second respondent is ordered to pay the applicant’s costs of this application including the costs of two counsel.

Ex parte: Connoway and Four Others (5873/2016, 6168/2016, 6167/2016, 6166/2016, 6002/2016) [2016] ZAWCHC 62 (24 May 2016)

Voluntary surrender-no advantage to creditors-attorney moves similar applications-insolvent to buy property back-refused.

Before me are five applications for voluntary surrender all of which were unopposed and moved in Third Division on 29 April 2016. In four of the five cases the applicant was represented by counsel instructed by the same firm of attorneys as were responsible for a batch of applications dealt with in a judgment I handed down on 18 September 2015, Ex parte Concato and Four others [2015] ZAWCHC 136 (September 2015); [2016] 2 All SA 519(WCC).

[2] More than seven months have passed since that judgment and since I last dealt with the unopposed roll in Third Division. Notwithstanding the grave reservations I expressed in that judgment regarding applications for voluntary surrender brought in a standardised and batch form by that firm, very little, it seems to me, if anything, has changed and these applications are still being brought in significant numbers. These four applications appeared on a roll of only 71 matters. Assuming the same degree of prevalence on each day the roll is called, this amount to some 20 matters a week or 80 a month, all brought by the same firm. Although this figure is obviously a very rough estimate it affords some idea of the volume of these applications.

[3] As mentioned little in the format has changed and each application projected a dividend of between 16 to 18 cents in the rand. None of them featured any major moveable asset let alone immovable property. Rather the estates sought to be surrendered comprises most, if not all, of the applicants’ worldly goods. There is one change, however; whereas in all the matters dealt with in Ex parte: Concato no mention was made of the applicants’ clear intention to purchase his/her estate back from the trustees, (without physically surrendering same), this intention is now made clear. As stated in Ex Parte: Concato, I have little if any doubt that it is the prospect of this outcome which has motivated and given rise to these applications.

[4] The same valuator and the same method of valuation has been utilized in each case and more than adequate provision has been made for the attorneys’ fee, including minor disbursements, in amounts ranging between R14 000.00 and R15 000.00. The portions of the applications dealing with the reasons for the applicant falling into a state of insolvency are again, highly coloured and in many instance it strains credulity that so many misfortunes could befall one person. No explanation is given as to how, on the one hand the applicants intends to purchase their estate back by way of payment by instalments, yet on the other hand will presumably finance the costs and disbursements of the sequestration process upfront.

[5] All the reservations which I expressed in Ex Parte: Concato regarding the bona fides of these applications and in particular whether they hold any advantage for creditors remain valid. Again, even though the applicants sought to surrender all their household goods, no waiver of their rights in terms of sec 82(6) of the Insolvency Act are contained in the papers.

[6] Not unexpectedly, given the production line nature and volume of these applications by this firm of attorneys, all the technical requirements for the voluntary surrender of an estate are met in each case.

[7] Once again, notwithstanding the general reservations which I have, each application clearly falls to be considered on its merits which I proceed to do.

MS AM CONNOWAY – CASE NO 5873/2016

[8] According to the statement of affairs, the applicant’s estate comprises total assets valued at R41 300.00 with concurrent liabilities of R90 668.61 and the estimated dividend is 17 cents in the rand. The applicant’s liabilities consisted of six creditors, the largest being in an amount of R38 153.16, a debt owed to a ‘family member’. No proof of this debt is furnished. The applicant states that she approached a debt counsellor but they advised that her surplus funds, R3 000.00 per month, were too small to justify using the National Credit Act’s remedies. This does not strike me as credible or correct advice. The movable assets which the applicant seeks to surrender (and then buy back) comprise electronic goods and furniture. In his report the Master states he cannot comment on the stated values of the assets as the trustees still have to do their own valuations of the items listed. He draws the Court’s attention to its powers in terms of sec 3(3) of the Insolvency Act to examine the petitioner or the petitioner’s attorneys and refers to Ex Parte: Crafford and Ex Parte: Napier (reported on SAFLII as Crafford v Crafford and another (19421/13, 19422/13 [2014] ZAWCHC 14 (13 February 2014).

[9] In argument counsel submitted that it lies within the Court’s discretion to order that the goods to be surrendered be sold by way of auction and the monies placed in

a fund for the benefit of creditors. I have reservations about issuing such an order, however, where the applicant has brought the application without a waiver in terms of sec 82(6) and on the clear understanding that she hopes to repurchase her assets by way of payments in instalments. If the assets are sold for much less than the forced sale valuation, probably in itself optimistic, the applicant will have the worst of both worlds.

MS J RUITERS – CASE NO 6168/2016

[10] According to the applicant’s statement of affairs her movable assets have a forced sale value of R62 000.00 whilst her liabilities amount to R188 709.24, leaving a deficit of R126 709.24. The dividend to creditors is projected at 18 cents in the rand. The Master states that he really does not know whether the acceptance of this application would be an advantage to creditors. Given that the applicant also expresses the hope that she will be able to purchase her goods back from the trustee, presumably by way of instalments, I share the Master’s evident doubts as to whether there will be any real advantage to creditors. Even if a dividend in this amount is notionally achievable since it will only trickle through to any proved creditors over a period of years. The applicant advises that her monthly income exceeds her expenses by R1 931.38. Leaving aside the costs of the sequestration, in itself amounting to some R27 000.00, applying the full surplus to this debt each month will take her approximately three years to purchase her estate back at the forced sale value.

[11] The applicant’s liabilities comprises the outstanding balance on loans from some 28 commercial lenders. Her explanation for how she fell into insolvency is a tale of nine years of borrowing money from Peter to pay Paul. The ‘household items’, being the estate which she seeks to surrender, comprises furniture and approximately 20 electronic appliances. These include four television sets, one hi-fi, two cell phones, two computers, a tablet and an iPad. This array of luxury items is difficult to square with the heart-rending story of privation and financial misfortune over a nine year period recounted by the applicant. On the terms of the financial arrangements which she envisages reaching with the trustee the applicant will retain all these goods in return for a monthly instalment and be entirely divested of her creditors.

[12] As in the case of other applicants the applicant states that she is convinced that her creditors will give effect to threats to take legal action against her but obviously none of them has yet done so, otherwise proof thereof would have been furnished. The applicant makes fleeting mention of contacting a debt counsellor only to be advised that her salary was hopelessly too little to utilise the remedies available to her in terms of the National Credit Act. This hardly seems credible since here salary is almost R13 000.00 per month and her surplus funds nearly R2 000.00 per month.

MR L TAYLOR AND MRS A TAYLOR: CASE NO 6167/2016

[13] The applicants are married in community of property and seek to surrender their estate, household effects with a forced sale valuation of R70 000.00. Their liabilities amount to R249 922.30, leaving a deficit of R179 922.30. The dividend projected for creditors is 16 cents in the rand. The total sequestration costs are estimated at no less than R28 525.98 with the attorneys costs, including minor disbursements, amounting to R14 819.00.

[14] The applicants’ assets comprise household furniture, appliances and electronic equipment, the latter including two television sets, one home theatre system, one hi-fi system, two refrigerators, two freezers and an array of cell phones, laptops and tablets. According to the applicants’ statement of their affairs their monthly expenses outweigh their monthly income by only R427.86 but an amount of R7 000 will be available if the applicants stop making monthly payments to their debt counsellor. In this latter regard the applicants state that notwithstanding paying approximately R7 000.00 per month since October 2013 the amount that they owe is higher than their liabilities at the commencement of the debt arrangement scheme. No explanation is provided for this paradox nor is any documentation furnished relating to their debt review or restructuring.

[15] The applicants’ liabilities consist in the main in the outstanding balances of monies loaned from institutions, totalling just less than R250 000.00. Notwithstanding this parlous state of affairs the applicants state that they propose to purchase their estate back from the trustee with the support of family, friends and employers. No details are furnished of precisely who will furnish this support, in what form or why this support cannot rather be used to reach an accommodation with their creditors.

[16] The Master again recommends that resort be had to the provisions of sec 3(3) of the Insolvency Act, no 24 of 1936 (as amended) which provides that the Court may direct the petitioner or any other person to appear and be examined before it declines the surrender. I take this to be an expression of scepticism on the part of the Master as to the bona fides and/or merits of their application, more particularly as to whether it holds any advantage to creditors.

MR S JOSEPH AND MRS N JOSEPH: CASE NO 6166/2016

[17] The applicants are married in community of property and seek to surrender an estate comprising of only movable assets with a forced sale valuation of R55 000.00 against liabilities totalling R157 575.14. This leaves a deficit of R102 575.14 and the projected dividend to creditors is 17 cents in the rand. The Master expresses scepticism that the acceptance of the application would furnish an advantage to creditors.

[18] The applicants lay claim to a total income in the form of their respective pensions in the amount of R2 820.00. Yet they state that their expenses amount to no more than R1 500.00 per month, being only groceries and transport, leaving them with a monthly surplus of R1 320.00. Even though the applicants state that they enjoy assistance from their children, I find these unsubstantiated figures very difficult to credit. The main liabilities which the applicants have amount to approximately to R150 000.00 worth of outstanding loans to two banks. The estimated costs of the sequestration amounts to R26 779.48, including attorney’s fees in the amount of R14 430.00. The applicants’ assets comprise household furniture, appliances and electronic items including two television sets, and four sewing machines valued at nearly R10 000.00. They state that with the help of their family members and friends they intend to purchase their assets back from their trustee. No details of this promised support are given nor why it cannot be utilised to reach an accommodation with their three creditors. They advise further that they approached a debt counsellor but according to him a debt review or reconstructing could not assist them. No further explanation for this advice is given.

[19] The Master states that he ‘really (does) not know’ whether acceptance of the application would be of advantage to the creditors.

GENERAL

[20] Although the Master recommends, in several of these matters, that the Court utilise its powers in terms of sec 3(3) of the Insolvency Act, he does not state what the purpose or focus of such examination would be. In requesting the Court to examine some petitioners in terms of sec 3(3) of the Act the Master referred to Ex parte: Crafford & Ex parte: Napier (reported on SAFLII as Crafford v Crafford and Another (19421/13, 19422/13) [2014] ZAWCHC 14 (13 February 2014) and Ex Parte: Bezuidenhout and Ex Parte: Pieterse (1858/2014, 1859/2014 [2014] ZAECPEHC 60 (19 August 2014.

[21] I have considered these judgments which deal with questionable practices on the part of an attorney and a valuator in voluntary surrender applications. Neither of those parties are involved in the present matters. The examinations brought to light a series of irregularities and led, in the case of the particular attorney involved, to disciplinary action against him. On balance, I have decided, at this stage, not to invoke the procedure in sec 3(3) of the Act. As mentioned by counsel, the Master has not specified in what respect he believes the petitioner/s (or the petitioners’ attorney) should be examined and, secondly, although the applications may have no merit, there are only limited indications of questionable practices being adopted. It is worth noting, however, that in Ex parte: Bezuidenhout it was brought to light that the applicants in both those matters found themselves in the hands of their attorney after conducting an internet based search and coming across an entity called Green Debt which promised a debt free resolution of their financial problems. In essence it offered sequestration by way of voluntary surrender as a solution to their problems. The applicants made telephonic contact with the offices of Green Debt and, after being encouraged to fill in an application for assistance, paid a fee to Green Debt and were informed that an attorney would contact them in due course.

[22] Significantly one of the creditors in the present Taylor matter is Green Debt, in the amount of R1 770.00 for services rendered. On the probabilities the Taylors found themselves in the hands of their attorneys, Messrs Etienne Genis and Company, using the same route. This adds another undesirable feature to one (or perhaps more) of these voluntary surrender applications viz that there is a ‘middle man’ earning fees through referring persons in financial straits to attorneys who ‘specialise’ in these applications. In Ex Parte: Bezuidenhout Goosen J stated as follows regarding this aspect:

‘Before turning to the merits of the application it is appropriate to comment on the circumstances in which these cases came to be brought and the manner in which they were conducted. The applicants in these two matters were clearly desperate people heavily burdened by debt and desperate to resolve their situation. These are precisely the sort of people for whom the machinery created by the National Credit Act exists. Their desperation led them to a web based entity which, it appears, is not a registered debt counsellor in terms of the provisions of the National Credit Act. They were made to pay a fee, R6800 in the one case and R7200 in the other, in order to “resolve” their financial difficulties. The result was an application for voluntary surrender initiated via a complex web of relationships in which dubious evidence is placed before a court in order to persuade that court to grant the relief.

Provision is made in the calculation of the possible dividend payable to creditors for the payment of the attorney’s fees out of the

estate. The result in effect is a further depletion of the financial resources available to creditors.’

[23] In my view the above sentiments regarding an intermediary apply to the Taylors’ application whilst Goosen J’s views regarding the applicability of the National Credit Act apply to all the matters under consideration.

CONCLUSION

[24] In my view, for the same general reasons as I set out in Ex Parte: Concato, these applications are fatally flawed. Even if I am wrong in this general conclusion, for the various specific reasons set out above in relation to each case, I consider that the applicants have failed to demonstrate that their applications are bona fide, that they have made full disclosure and, most importantly, that the voluntary surrender of their estates will produce an advantage to creditors.

[25] In the result all four applications are dismissed.

PETER DAVID EDGE: CASE NO 6002/2016

[26] This application for voluntary surrender, in which the applicant is represented by different attorneys, stands somewhat apart from the applications with which I have just dealt.

[27] He seeks to surrender an estate comprising assets which he values at R65 800.00 and liabilities amounting to R225 000.00, leaving a deficit of R159 150.00. After making provision for the total costs of sequestration in the amount of R30 000.00, the applicant projects a possible dividend of 15 cents in the rand.

[28] The application has procedural or technical flaws. In the first place the applicant’s notice of voluntary surrender appeared both in the Government Gazette and in a newspaper on 11 March 2016. This date was approximately 31 court days, or approximately 60 ordinary days, before the application was set down for hearing in Court. Subsection 4(1) of the Insolvency   Act requires  the notices to be published not more than 30 days and not less than 14 days before the date stated in the notice of surrender. It is common cause that the reckoning of days is not to be computed with reference to court days and therefore the notices were served well outside of the time period of between 14 and 30 days.

[29] According to the commentary in Meskin’s Insolvency Law (Butterworth) (3-8 issue 44), this irregularity amounts to a formal defect and as such can be condoned. In this determination the first question is whether the defect has caused or may have caused prejudice, presumably to creditors. I should imagine that the prejudice in such a instance is that, given such lengthy notice, creditors may have forgotten or lost interest in presenting themselves at court to oppose the application for surrender. In the present matter there is no indication of any such prejudice having been suffered but there again, given its nature, there seldom, if ever, will be.

[30] The second defect in the papers is that the assets comprising the applicant’s estate have not been properly valued. In Nel v Lubbe 1999 (3) SA 109 W Levenson J held, in the context of a sworn valuation of immovable property by an estate agent,

that testimony must be placed before the court of the facts relied upon by the expert for his opinion, as well as the reasons upon which it is based.

[31] It goes without saying that the qualification of the valuator who expressed an expert opinion must be established. Something more than a ‘bold assertion of value’ is necessary. In Ex Parte: Ogunlaja and Others [2011] JOL 27029 (GNP), Bertelsman J endorsed the approach by Levenson J in Nel v Lubbe and stated further:

‘It is necessary to add that the nature of the valuation report is such that, in the absence of a reliable method of calculation of the value of the immovable properties, the Court is left with the uncomfortable impression that the valuator and the applicant or the applicant’s legal representatives, are too close to one another to allow the preparation of an independent expert’s report. The thought is difficult to dismiss in these applications, and in many others the court has seen over the past two to three years, that the valuator is fully aware of the value that needs to be certified for assets in every individual insolvent estate to ensure that the papers reflect a conclusion that an advantage to creditors is assured if the surrender is accepted…’

[32] In the present matter all that there is in support of the valuation is a list of the assets, very briefly described, with a monetary value attributed to them. This list then bears the stamp of LF Schneider t/a JJ Reitstein and an address in Woodstock. In manuscript is written ‘I have examined the contents of his house and agree that this is a fair valuation of these assets’ followed by a signature. Mr LF Schneider, or whoever made the valuation, does not state what his/her qualifications are, what experience he/she has had in the valuation of movable property and nor does he/she furnish any further details relating to the valuation such as the condition of the goods or his/her reasons for arriving at the valuation. I should mention also that these assets comprise a wide variety of goods including sports equipment, computers and office furniture, various artworks, tools, equipment and other furniture.

[33] It is not even stated whether these goods are valued on a forced sale basis. Neither the applicant’s affidavit nor the statement of affairs which he lodged sheds any further light on these questions.

[34] A further defect in the application is that provision for the costs of the sequestration amounts to an estimate in the form of a globular sum with no breakdown into attorney’s fees or disbursements at the various statutory tariffs which apply. It is thus not possible to evaluate this estimate or the allegation that these costs will not exceed R30 000.00.

[35] Based on the valuation provided, inadequate as it is, the applicant’s estate is a very limited one and will be depleted, if the valuation of assets is realised, by approximately 50% to pay for the costs of the voluntary surrender application and the administration of the insolvent estate. The projected dividend, which obviously is based upon the already questionable valuation being reasonably accurate, is only 15 cents. I have grave doubt whether even this dividend will ever be achieved.

[36] Finally, for good measure the applicant has failed to even raise the question of whether he had utilised or considered utilising the procedures in the National Credit Act, namely, that of debt review and debt restructuring, with a view to resolving the financial difficulties in which he finds himself.

[37] The Master appears to express doubt that the projected dividend will be advantageous to creditors and recommends that the applicant be examined in terms of sec 3(3) of the Insolvency Act, but once again without an indication of what point would be served by such an exercise. [38] Taking into account the various shortcomings which I have referred and to the extremely limited prospect that there will be an advantage to creditors, I consider that the application for voluntary surrender cannot succeed.

[39] The application is accordingly dismissed.

Judge who heard the matters: BOZALEK J

Lagoon Beach Hotel (Pty) Ltd v Lehane NO a.o. 2016 (3) SA 143 (SCA) 

Interdict — Anti-dissipation order — Urgent application for — Large, complex matter — Reliance on hearsay — Inclusion of new material in replying affidavit — Practical and common-sense approach to be taken. Insolvency — Trustee — Foreign trustee — Recognition — Requirement that insolvent be domiciled within jurisdiction of court appointing foreign trustee.

Mr Lehane, under an Irish court order, was the official assignee of Sean Dunne's bankrupt estate. In the course of administering it, he came to learn that Dunne had at one time held shares in an Irish company (Mavior), which was the sole shareholder of a South African company (Lagoon Beach, the appellant), which in turn owned a hotel in Cape Town. He also came to learn that Dunne, possibly while insolvent, had transferred his shares in Mavior, his right to repayment of a loan against same, and his interest in the hotel, to his wife Gayle (they were married out of community of property). He further came to understand that Lagoon was in the process of selling the hotel to a third party.This caused Lehane to apply urgently and ex parte to the Western Cape Division of the High Court. It (Steyn J) granted as a rule nisi an order recognising Lehane; and an interim interdict restraining sale of the hotel pending legal proceedings in Ireland to set aside Dunne's aforementioned dispositions to his wife.Lagoon anticipated the return date, but the court (Yekiso J) confirmed the rule. Lagoon then obtained its leave to appeal to the Supreme Court of Appeal. The issues there were as follows:Lagoon argued that the interim interdict was in effect a final interdict and thus appealable. It was final in nature it said, owing to its indeterminate but likely lengthy operational life; and by the fact that it would not be revisited in the local or Irish courts. Held, rejecting the argument, that invariably an interim interdict related to proceedings concerned with different relief and involving different parties, and that neither of these facts rendered such an interdict final in nature. Moreover, it was always open to the party subject to the order to apply to vary it or set it aside. In any case Lagoon had conceded in argument that the interdictory aspects of the order were not final and thus not appealable. Lagoon's further argument was that the court had impermissibly relied on hearsay supplied to it by Lehane in his affidavit as the basis for its order. Held, that there was indeed a great deal of hearsay in Lehane's papers, but that in the circumstances it was understandable. In a large and complex case like this, where it would be impracticable to require each person with knowledge of a fact to make an affidavit, the rules regarding hearsay could be relaxed. It was necessary in such

circumstances to take a practical and common-sense approach. Lagoon also argued that Lehane had included new material in his replying affidavit; that this contravened the rule against amplifying a case in reply; and that the material should be ignored. Held, that a practical and common-sense approach had once again to be taken, and that in the circumstances the new material ought not to be ignored. (Those circumstances were that Lehane's deputy, who was less familiar with the facts, had launched the application; that it had been made urgently; that the facts were complex; and that Lagoon had had an opportunity to reply, but had chosen not to do so.) Some months prior to Dunne's Irish creditor obtaining the Irish bankruptcy order, Dunne had himself obtained a bankruptcy order from an American court. Lagoon's further argument was that the American bankruptcy order brought about a global stay on proceedings concerning the bankrupt's estate; and that this stay ought to have barred Lehane from obtaining the preservation order. Held, rejecting this argument, that the American court had lifted the stay to allow the obtaining of the Irish court's bankruptcy order and the appointment of Lehane; that the American trustee in insolvency endorsed Lehane's effort to obtain the South African court order; and that to permit him to do so would ensure the integrity of the legal process in both of those jurisdictions. Lagoon also made an argument based on the requirement that a South African court may only recognise a foreign trustee of an insolvent estate, if the insolvent were domiciled within the jurisdiction of the court that appointed the trustee. (The domicile requirement may, however, be relaxed if exceptional circumstances are present.) Lagoon argued that Dunne had not been domiciled within the jurisdiction of the Irish court that appointed the official assignee, and consequently the South African court had erred in recognising the latter. (Lagoon asserted that Dunne was domiciled in the United States, or possibly Switzerland.) Held, that the High Court's recognition was justified: a prima facie case had been made that Dunne was domiciled in Ireland, and even though there remained some uncertainty about this, exceptional circumstances were present that justified the order. These were that the American trustee of Dunne's estate (America being the most likely alternative domicile of Dunne) was collaborating with the official assignee to find and recover Dunne's assets.The High Court's grant of recognition and of the interim interdict upheld, and the appeal dismissed. 

Safari Thatching Lowveld CC v Misty Mountain Trading 2 (Pty) Ltd 2016 (3) SA 209 (GP) 

Business rescue — Moratorium on legal proceedings against company — Where business rescue proceedings instituted at time when legal proceedings against company already commenced — Leave to proceed with legal proceedings may be sought during those proceedings themselves — Substantive, separate application not required — Companies Act 71 of 2008, s 133(1)(b).

Where already commenced legal proceedings against a company have been suspended as a result of the institution of business rescue processes, leave to proceed, in terms of s 133(1)(b) of the Companies Act 71 of 2008, may competently be sought during such main proceedings themselves; a substantive, separate application is not required.

Ex parte Concato and similar matters [2016] 2 All SA 519 (WCC)

Voluntary surrender – Formulaic applications – Bona fides and advantage to creditors – Court held that provided that the process was conducted in accordance with the law, the interests of the general body of creditors were given due and proper consideration, and such application was dealt with by the practitioner on its merits, was bona fide, they should not be dismissed due to the manner in which the attorney dealt with them – In casu, it was found that insolvent retains the use of all his assets, and eventually reaches an arrangement with the trustee to purchase them back, and is immune from his existing creditors by virtue of the voluntary surrender order which has been granted.

In five applications for voluntary surrender, the applicants were represented by the same lawyers, and the format of the applications was strikingly similar. The court in which the applications were first called expressed scepticism about the merits of the application – and, in particular, the fact that in each instance it was contended that upon voluntary surrender a dividend of either 16 or 17 cents would accrue to creditors. That led to the attorney acting for the applicants filing a supplementary affidavit in an attempt to satisfy the court that his firm conducted a proper, lawful and ethical practice and that it relied in these applications on no documents which were inappropriate or which might mislead the court.

Held – It is open to any debtor to seek escape from financial difficulties via the route of voluntary surrender provided that he or she is able to make a proper and bona fide case in compliance with the provisions of the Insolvency Act 24 of 1936. In such applications, the need for full and frank disclosure and well-founded evidence is even more pronounced. A further factor relevant to voluntary surrender applications is the institution of machinery for debt relief in terms of the National Credit Act 34 of 2005.

Even after the filing of the supplementary affidavit, the present Court remained troubled by the formulaic and often superficial nature of the applications and the striking similarities between them, not only in their format and general allegations, but in the projected dividend which, as mentioned above, was invariably either 16 or 17 cents. The Court held that provided that the process was conducted in accordance with the law, the interests of the general body of creditors were given due and proper consideration, and such application was dealt with by the practitioner on its merits, was bona fide and was not being shoe-horned into some pre-determined formula designed only to achieve a favourable result, they should not be dismissed due to the manner in which the attorney dealt with them.

In friendly sequestrations and voluntary surrenders, the question of the accuracy and integrity of the valuation is of primary importance. Due to its concerns in that regard, the Court called for further information to be reported to ascertain whether the projected dividends would be achieved and whether such orders would be in the interests of creditors. The most conspicuous feature revealed by the report was that in the great majority of cases the arrangement eventually arrived at was that the insolvent bought back the assets in his surrendered estate, invariably by way of payments in instalments. The Court could not find that such arrangement was to the advantage of creditors. The insolvent retains the use of all his assets, and eventually reaches an arrangement with the trustee to purchase them back, and is immune from his existing creditors by virtue of the voluntary surrender order which has been granted.

Turning to consider each of the applications individually, the Court held that none of them were bona fide or that the orders of voluntary surrender would be to the advantage of creditors.

The applications were, accordingly, refused.

Ngwato v Van der Merwe NO (2014/28470) [2016] GJ (6 May 2016)

Claims-employees-starting date of suspension-section 38(1) of the Insolvency Act, 24 of 1936, as read with section 339 of the Companies Act 61 of 1973, means that the contracts of service of employees whose employer, which is a company, has been liquidated, are suspended with effect from the date of the granting of a provisional or final liquidation order (if no provisional order was granted) and not from the date of the presentment of the application for liquidation. The employees may proof claims for the period until the granting of the liquidation order.

Section 38(1) of the Insolvency Act 24 of 1936 provides as follows:

The contracts of service of employees whose employer has been sequestrated are suspended with effect from the granting of a sequestration order.

By virtue of the transitional provisions in item 9(1) of Schedule 5 of the Companies Act 71 of 2998, chapter 14 of the Companies Act 61 of 1973 continues to apply with respect to the winding-up and liquidation of companies, as if the 1973 Companies Act had not been repealed.

Section 339 of the 1973 Companies Act provides as follows:

In the winding-up of a company unable to pay its debts the provisions of the law relating to insolvency shall, in so far as they are applicable, be applied mutatis mutandis in respect of any matter not specially provided for by this Act.

The court was satisfied that the relevant sections in the Labour Relations Act 66 of 1995 - “LRA” (the court referred to sections 197B and 189(1)) ensured the protection of fair labour practices in terms of section 23(1) of the Constitution, which should not be limited unless the limitation was reasonable and justifiable in terms of section 36 of the Constitution. (Par [53])

Cilliers and others v Steenkamp and others [2016] JOL 34781 (WCC)

Liquidator-duty to insurance assets-no duty on the liquidator of a company to insure assets of a wholly owned subsidiary of the company-Macadamia Finance BK en  'n ander v De Wet en andere NNO 1993 (2) SA 743 (A) mentioned and distinguished

There is no duty on the liquidator of a company to insure assets of a wholly owned subsidiary of the company.

In Macadamia Finance BK en  'n ander v De Wet en andere NNO 1993 (2) SA 743 (A) the plaintiffs sued the defendants as liquidators of two companies in liquidation. They contended that they were liable for damage caused by fire to a plantation of macadamia nut trees on a farm belonging to the second company because they had negligently failed to insure the assets of the second company. The defendants were appointed as liquidators of the second company long after the fire. The court found that although there was in general a duty on a liquidator to insure the assets of a company, no such duty arose in respect of the assets of a company if the liquidator was not appointed as such for the company. The close relationship between two companies did not affect the legal distinction between a holding company and a wholly owned subsidiary. (Par [33])

Judge Cloete distinguished this case from Macedamia:”[35]  Moreover to the extent that the pleading in the present matter might seek to allege some form of de facto control by KCM over Bo-Karoo, the findings inMacadamia Finance are equally decisive. In any event no primary facts are alleged by the plaintiffs to support a conclusion of de facto control.”

The case was about exceptions. The plaintiffs were shareholders in a company (“KCM”) over which the first to third defendants were the duly appointed liquidators. In January 2014, the plaintiffs issued summons against the liquidators and the fourth to sixth defendants (the latter on the basis of vicarious liability for alleged acts or omissions on the part of the individual liquidators during the course and scope of their respective employment).

The third and sixth defendants excepted to the amended particulars of claim, contending that the claims advanced by the plaintiffs, as currently pleaded, failed to disclose a cause of action, alternatively were vague and embarrassing and that they were severely prejudiced as a result.

Held that a pleader is required to allege the primary facts upon which he relies as well as the conclusion sought to be drawn from those facts. A pleading will be defective if a conclusion is asserted without pleading the primary facts to support it. The particular facts that a party must plead in order to disclose the cause of action relied upon, pertain not to matters of procedure but to substantive law, given that they must form the foundation for the legal conclusion which in the ordinary course, would support the party’s right to judgment. If that is not done, the pleading will be excipiable for failing to disclose a cause of action.

An exception on the ground that a pleading is vague and embarrassing is aimed at the formulation of the cause of action rather than its legal validity per se, but this type of exception can only be taken if the vagueness goes to the cause of action itself, and will only be allowed if the excipient will be seriously prejudiced as a result.

The grounds of the exception in this case related to the assertion by the plaintiffs of the existence of a duty on the liquidators of KCM to take control of its wholly owned

subsidiary; the absence of the assertion of any such duty as pleaded in the third claim (an unspecified duty of care is instead relied upon); and the fact that the claims were all for pure economic loss but lacked averments necessary to sustain same.

The excipients contended that although the pleading alleged a failure to discharge the duty to take control of the subsidiary, it did not allege any primary facts from which a conclusion of the duty to take control could be drawn. The plaintiffs pinned their colours to the sole mast that the fiduciary duty imposed upon the liquidators includes the duty to take control of KCM’s wholly owned subsidiary. The excipients correctly submitted that not only had the plaintiffs failed to allege any primary facts to support that legal conclusion, but the conclusion itself was wrong in law. The Court held that the pleading failed to disclose a cause of action in respect of the first three claims, or alternatively was vague and embarrassing.

The excipients’ remaining attack was directed at the fact that all of the claims were for pure economic loss. That exception was also upheld. The plaintiffs were given leave to further amend their particulars of claim by a stipulated date.

Knoop NO and others v Birkenstock Properties (Pty) Ltd and others[2015] JOL 33788 (FB)

Piercing the corporate veil- Conduct of insolvent – Alleged fronting by trust – Anti-dissipation order – Piercing corporate veil – The corporate veil will be pierced where there is proof of fraud, dishonesty or other improper conduct in the establishment or use of a company and the conducting of its affairs – A court will not lightly disregard a corporate entity’s separate legal personality and will endeavour to maintain the separate personality

An insolvent estate, in which the applicants were trustees, was finally sequestrated on 14 December 2004. In the performance of their duties the applicants conducted an investigation into the insolvent’s affairs and arrived at the conclusion that the insolvent was using a trust as well as the first respondent as a front for her own benefit even though her estate had been sequestrated without assets for the benefit of creditors. The applicants discovered that the first respondent was due to be paid a substantial amount of money, and that the insolvent had made demands for payment from the first respondent. Consequently, the applicants brought the present application for an anti-dissipation order.

Amongst several preliminary issues raised was the averment that the applicants had not made out a prima facie case in respect of the claim in the action which they intended to institute. If that submission was found to be correct, it would dispose of the matter.

Held that as the trust had been formed a considerable period of time before the insolvency, the insolvent could not legally lay any claim to the trust property. Therefore, in order to lay claim to the funds, the applicants were constrained to make out a prima facie case that the trust and the first respondent had misused or abused the principle of corporate personality and that the court had to lift the corporate veil so as to attribute liability to the person behind the corporate entity. The applicants also had to show that the property of the first respondent and the trust were in truth that of the insolvent.

The corporate veil will be pierced where there is proof of fraud, dishonesty or other improper conduct in the establishment or use of a company and the conducting of its affairs. A court will not lightly disregard a corporate entity’s separate legal personality and will endeavour to maintain the separate personality. When there is fraud, dishonesty or some other improper conduct, policy dictates that the court engage in a balancing exercise by considering the circumstances and facts of each case to determine whether in the appropriate case, it is proper to disregard the corporate personality and apportion liability where it belongs. It is irrelevant whether the corporate entity is a trust or a company. If it can be established on a balance of probabilities that the particular transactions complained of were the tainted fruits of fraud or other improper conduct, a court would, in appropriate circumstances, disregard the separate legal personality.

Piercing the veil is a drastic remedy, and therefore must be resorted to sparingly. Although the Court acknowledged that the insolvent treated assets of the first respondent and the trust in a manner which was suspicious and highly irregular, none of the actions complained of resulted in the property vesting in the applicants.

The application was accordingly dismissed.

Shanmugam v Peter NO and others [2016] JOL 36072 (KZD)

Liquidators-Close corporation – Liquidation of – Contract signed by liquidators – Requirement that liquidators act jointly

The first and second respondents were appointed as liquidators of a close corporation which owned certain immovable property. They decided to sell the property to the applicant and signed a written agreement of sale on 5 June 2012. The agreement was not signed by the third respondent, who was appointed as the third liquidator on 4 June 2012. On 2 July 2012, a firm of attorneys gave the applicant written notice that he was in breach of the agreement in that he had not made certain payments and on 16 August 2012, they notified him of the cancellation of the agreement.

The property was sold by public auction nearly three years later, with the successful bidders being the applicant’s sister and a third party, whose wife was the sole member of the close corporation in liquidation. That agreement was cancelled on 16 September 2015 due to a failure by the purchasers to comply with their obligations. On 3 November 2015, the property was again sold by public auction. During the confirmation period, a higher offer was accepted by the liquidators and the property was sold by private treaty. On 3 November 2015, the applicant instituted action, seeking an order for the transfer of the property to him, against a tender to perform all his obligations as purchaser in terms of the agreement of 5 June 2012. He then launched an application to interdict the transfer of the property pending the final determination of the action. A rule nisi together with an interim interdict was granted, and the matter came before the present court for confirmation of the rule.

Held that in terms of section 2(1) of the Alienation of Land Act 68 of 1981, no alienation of land shall be of any force or effect unless it is contained in a deed of alienation signed by the parties thereto or by their agents acting on their written authority. Corporate entities, being unable to act other than through natural persons, cannot give written authority to their representatives, and therefore the written authority requirement does not apply when a functionary of a company signs a

contract for the sale of land. In the present matter the agreement was not signed by a member of the close corporation, but by two of the three liquidators. In terms of section 282 of the Companies Act 61 of 1973 liquidators are required to act jointly in performing their functions. The third respondent was appointed as a joint liquidator the day before the other two signed the agreement. It was not disputed that he had not authorised them to do so. The agreement of 5 June 2012 was therefore invalid as the two liquidators who signed it could not bind the close corporation without the authority of the third liquidator.

In the premises, the applicant had not made out a prima facie case, with the result that the rule nisi was discharged with costs.

Griffiths v Janse Van Rensburg and another NNO 2016 (3) SA 389 (SCA)

Voidable dispositions — Voidable preference — What constitutes — Semble: Payment under condictio ob turpem vel iniustam causam could be disposition in ordinary course of business — Insolvency Act 24 of 1936, s 29(1).Voidable dispositions — Voidable preference — Interest — Debt created when court sets aside disposition and declares right to recover property — Mora begins and mora interest runs from this date — Insolvency Act 24 of 1936, s 32(3).

The issue in this case was whether dispositions were 'ordinary' in the sense in s 29(1) of the Insolvency Act 24 of 1936. The facts were that Griffiths loaned a trust R100 000 for three months, which at the end of the period the trust repaid along with a separate payment of R12 000 in interest (a rate of approximately 42 % per annum). Thereafter Griffiths again loaned R100 000, this time for two months, at the end of which he was repaid separately the R100 000 and R12 000 interest (an interest rate of about 74 % per annum).The trust was later sequestrated, and its trustees in insolvency acted to set aside all four of the payments as 'dispositions' within the meaning of s 29(1).It was agreed that each payment was a 'disposition'; that each was made in the period six months before the trust's sequestration; that after each payment the trust's liabilities exceeded its assets; and that each preferred Griffiths. It was also conceded that no preference was intended. In issue was whether the payments were dispositions within the ordinary course of business. The further agreed facts were that the trust's business was a pyramid scheme; that it contravened the Consumer Affairs (Unfair Business Practices) Act 71 of 1988 and the Banks Act 94 of 1990; and that each of the loan agreements was illegal and void. It was also agreed that a bank employee had introduced Griffiths to the trust; that he had never met any of its representatives; that Griffiths received no documentation of the first loan and, only after applying 'duress', documentation of the second; that he struggled to obtain payment in both cases; that he had only vague knowledge of the trust's business, no knowledge of its illegality, and that he had 'decided to take a chance'. The High Court held that none of the dispositions were in the ordinary course of business; set all four aside; and ordered Griffiths to make repayment. It also ordered Griffiths to pay interest on the amounts, running from the date of judgment.It later granted leave to Griffiths to appeal, and to the trustees to cross-appeal.The trustees contended that the court ought to have ordered mora interest to run from the date of service of summons. (Paragraphs [10] and [32] at 394F and 400I – 401A.)

In the Supreme Court of Appeal, Griffiths was faced with the requirement for a disposition to be in the ordinary course of business, that it have a lawful basis. He contended that the repayment of the loans had such a basis — a right under the condictio ob turpem vel iniustam causam. (He conceded that there was no lawful basis for payment of the interest sums.) Held, that, in principle, a payment under the condictio could be a disposition in the ordinary course of business. However, at the time, Griffiths was unaware that the agreements were void, and that he had a right under the condictio; and he had demanded payment, and the trust had made payment, on the basis of the void agreements. Accordingly the payments had not been in the ordinary course of business. The question in the cross-appeal was when mora interest on the debt was to run from — from date of summons or judgment. Held, that the debt only arose on judgment, and consequently mora interest could only run on it from then.Appeal and cross-appeal dismissed. Petse JA agreed that the cross-appeal should be dismissed, but would have upheld the appeal. In his view the loans were valid and the dispositions in the ordinary course; or alternatively if the loan agreements were invalid, Griffiths had a right to repayment of the loan sums under the condictio. That Griffiths had demanded repayment in terms of the loan agreements did not debar his later reliance on the condictio.

Ex Parte Concato and similar cases 2016 (3) SA 549 (WCC)

Voluntary surrender — Application — Multiple applications brought on batch basis — Permissible, provided applications dealt with on merits, were bona fide, and not shoehorned into predetermined formula designed only to achieve a favourable result.Voluntary surrender — Application — Requirement that surrender be to advantage of creditors — Strong likelihood that order of voluntary surrender would result in buy-back agreement under which insolvent would buy back assets at forced-sale value in instalments — Unlikely to be in best interests of body of creditors.Voluntary surrender — Application — Requirement that surrender be brought in good faith — Where outcome of order of voluntary surrender predetermined — Lack of good faith.The court in this matter was seized with five voluntary-surrender applications, all unopposed. In each case the respective applicant(s) were represented by the same counsel and firm of attorneys, the latter of which operated a specialised insolvency practice and often brought voluntary-surrender applications to court in large numbers. Having heard argument, the court expressed its concern as to the formulaic and superficial nature of the applications, the striking similarities in format and allegations, and the fact that in each case the projected dividend was either 16 or 17 cents to the rand. To allow it to properly consider whether the projected dividend would be achieved and whether the orders sought would be to the benefit of creditors, the court requested that the applicants' attorneys furnish particulars of the outcomes of similar applications in which it had been involved. The exercise was carried out, and the resulting report dealt with a total of 90 matters in which voluntary-surrender orders were made in the recent past, and revealed the following pertinent features, among others:

• In a large proportion (73%) of the matters, the projected dividend was either 16 or 17 cents in the rand.• Of the cases where there was no fixed asset (79 out of 90), the vast majority (90%) concluded 'a buy-back' arrangement in terms of which the insolvent purchased back his or her assets at the forced-sale value. And further, in most of these cases, the purchase price was payable by way of instalments.In the course of its judgment the court considered, in some detail, the principles and requirements applicable to voluntary surrenders, in particular, having regard to the risk of potential abuse in such applications, the need for full disclosure and the presence of good faith on the part of an applicant. Furthermore, the court addressed the particular problems that might arise where multiple applications were brought by a single firm of attorneys on a batch basis.Held: In itself there was nothing wrong with a firm of attorneys bringing a number of voluntary-surrender applications to court in a batch. However, this was subject to the proviso that such applications were always dealt with by the practitioner on their merits (ie on the basis of reliable and, where appropriate, detailed information); were bona fide; and were not being shoehorned into a predetermined formula designed only to achieve a favourable result. As to the features common to the voluntary-surrender applications detailed in the reportThere was serious doubt whether the 'buy-back' arrangements could be said to be in the interests of the body of creditors. One, as was apparent from the report, many creditors would not trouble to prove their claims. Two, the assets were valued on a forced-sale basis, and yet, without any auction being held, the insolvent invariably purchased them back at such value, by way of instalment payments and over an extended period of time. The effect of such arrangement was that: the insolvent person retained his/her assets and the benefits thereof; from the time of the giving of the order of voluntary surrender they would be immune from their creditors; and they would avoid having to undergo the rigours of paying creditors by way of an arrangement or scheduling made in terms of the National Credit Act 34 of 2005. At best for the creditors, in the unlikely event that they did all prove their claims, they would receive a dividend of no more than 16 or 17 cents in the rand, and in paltry amounts, trickling in over a period of years (in view of the terms of the buy-back agreements, and the delays inherent in the ordinary administrative processes).Furthermore, the probabilities pointed to a conclusion that the outcomes of the voluntary-surrender applications — in the vast majority of cases, buy-back agreements — were preordained; in other words the would-be applicants were fully apprised of the fact that they would be able to buy back their estate. On such ground alone the applications could not be said to be bona fide. Where the likelihood of such an agreement did present itself, an insolvent bringing a voluntary-surrender application should disclose that they had been advised of such a likelihood, and that they intended to take up such opportunity if circumstances permitted. Only upon such disclosure, together with an explanation of how the applicant would finance such a repurchase, would a court be placed in a position to realistically consider whether an order was in the interests of creditors or whether the application was merely a self-serving exercise.

As to the merits of the five particular cases brought before the courtHaving regard to the evidence revealed in the report submitted by the applicants' attorneys, the most likely outcome of each application, should orders of voluntary

surrender be granted, would be the conclusion of buy-back agreements, with all their attendant shortcomings illustrated above. As such, the applications were not bona fide, nor would the orders of voluntary surrender be to the advantage of creditors. A conclusion of lack of bona fides was also informed by shortcomings in the applications as a whole, including inter alia their superficiality, the similarity in the averments made and the uncanny coincidence of the projected dividend being either 16 or 17 cents in the rand. There were also lacunae evident in the particular applications under consideration that led to the conclusion that the applicants had either not made full and proper disclosure of their affairs, or had not employed, or properly utilised, alternative statutory measures to reach an accommodation with their creditors.Applications for voluntary surrender refused.

Gihwala and others v Grancy Property Ltd and others [2016] 2 All SA 649 (SCA)

Company law – Company directors – Orders of delinquency in terms of section 162(5)(c) of the Companies Act 71 of 2008 – Directors found to have been guilty of gross abuses of their positions, in circumstances where they owed a fiduciary duty to ensure that company complied with terms of an agreement – Orders of delinquency justified.Two actions, brought by the first and second respondents, were consolidated in the High Court. The court upheld most of the claims of the first respondent (“Grancy”). It gave judgment against the first and second appellants for payment of certain amounts. In addition, it ordered the first and second appellants to disclose books of account and financial records relating to a related entity’s affairs, and ordered that a statement of account be rendered to Grancy with regard to a business venture. Lastly, in terms of section 162(5)(c) of the Companies Act 71 of 2008, the court declared the first and second appellants to be delinquent directors. Before the present Court, lay an appeal by the appellants, and a cross-appeal by Grancy against the dismissal of two of its monetary claims.

The background facts were as follows. In February 2005, the parties concluded an agreement in terms of which an English businessman befriended by the first appellant, would through Grancy, acquire a one-third share in a company (“SMI”), which would in turn acquire a 58% stake in another company. To that end, Grancy provided funding of around R3,5 million. Disputes arose when the first and second appellants refused to recognise that Grancy was entitled to a shareholding in SMI or any information about its business or how its money had been invested.

Held – The issues for determination on appeal were whether the 2005 agreement was breached and, if so, in what respects; whether Grancy had financial claims arising out of the breach of the agreement; whether those claims were precluded by the rule in Foss v Harbottle (1843) 2 Hare 461; (1843) 67 ER 189; whether Grancy was entitled to orders against the first and second appellants in terms of section 424 of the Companies Act 61 of 1973 or section 77(3) of the Companies Act 71 of 2008; whether Grancy was entitled to an order for access to the books and accounting records of SMI and for the rendering of an account in relation to its investment; whether section 162 of the 2008 Act was unconstitutional and, if not, whether the

High Court was correct to make orders of delinquency in relation to the first and second appellants.

The Court found that from the outset, there were clear breaches of the agreement. The Court examined each of the monetary claims, and upheld the cross-appeal in regard to one of the two claims which had been dismissed in the court below. It also varied the High Court’s orders in respect of some of the other monetary claims. In so doing, the Court held that the relevant claims were not excluded by the rule in Foss v Harbottle.

Finally, the Court upheld the orders of delinquency in relation to the first and second appellants, finding that they had been guilty of gross abuses of their positions as directors of SMI, to which they owed a fiduciary duty to ensure that it complied with the terms of the agreement concluded with Grancy.

Knipe and Another v Noordman N.O. and Others (A230/2014) [2016] ZAFSHC 86 (2 June 2016)

Provisional liquidator-duties- no powers to do what may amount to a liquidation of a company

The respondents in this appeal are the joint provisional liquidators of two companies, Kameelhoek (Pty) Ltd and Schaapplaats 978 (Pty) Ltd (the companies).  The appellants, who are brothers, and their three siblings are the shareholders of the companies.  The court a quo, in essence, granted authority to the respondents to sell the assets of the companies.  The appellants appeal against the judgment and order of the court a quo, with its leave.

This matter forms part of extensive and protracted litigation in respect of the companies.  Fortunately, it is not necessary to burden any reader of this judgment with a full exposition thereof.  The following background suffices for a proper understanding of this judgment.

The companies were incorporated at the instance of the father of the shareholders of the companies.  The companies are not insolvent.  Each company carries the name of the farm that it owns.  The value of these farms far exceeds any valuation of the liabilities of the companies.  The companies have no tangible moveable assets.  It is common cause that the cattle and game on the farms are not the property of the companies.  The only possible other assets of the companies are rather nebulous claims related to the fact that the cattle and game were kept on the farms.  It follows that the respondents were granted leave to sell the farms and, in effect, to liquidate the companies.

Provisional liquidation orders in respect of the companies were made on 30 August 2012.  They were made on the ground that it was just and equitable to liquidate the companies.  The main underlying reason for the provisional liquidation orders in respect of the companies was the inability of the shareholders to get along.  On 6 September 2012 the respondents were appointed as provisional liquidators of the companies.  In terms of section 386(5) of the Companies Act 61 of 1973 (the Act), the Master of this court restricted the powers of the respondents to those set out in section 386(1) of the Act.  Despite the repeal of the Act by the Companies Act 71 of 2008, the provisions of Chapter 14 of the Act remain of application, subject to

exceptions not presently relevant.  This is provided for in item 9 of Schedule 5 of Act 71 of 2008.

Final liquidation orders were made on 27 June 2013.  The appellants’ applications for leave to appeal against the final liquidation orders were refused and on 5 February 2014 their petition to the Supreme Court of Appeal suffered the same fate. Per letter dated 9 April 2014 the respondents recommended to the Master in terms of section 386(2A) of the Act that the farms be sold.  For reasons not necessary to state herein, the Master declined to authorise the sale of the farms.  The application that served before the court a quo was consequently issued on 25 April 2014.  By that date some of the shareholders of the companies had launched an application to inter alia review and set aside the decision of the Master to admit proof of the creditor’s claims at the meeting of 16 April 2013 (the review application).  When the respondents’ application was launched, a date of hearing of the review application had not been set.

The basis of the respondents’ application to the court a quo was that it was necessary to sell the farms to provide for payment of the administration costs of the respondents.  The main allegations in support of the application were the following.  It was stated that because of the delay caused by the legal processes leading to the refusal of the petition, the respondents had by 25 April 2014 incurred administration costs in the amount of approximately R1,5 million.  The respondents said that because of the pending review application, the Master was unable to convene first meetings in terms of section 364(1) of the Act and that therefore final liquidators could not be appointed before finalisation of the review application.  In the meantime, so the respondents said, the administration costs would continue to escalate at the rate of approximately R125 000,00 per month.  By far the greatest portion of the past and future administration costs related to the costs of an agent appointed by the respondents to safeguard the cattle and game on the farms.

In their answering affidavits the appellants vehemently denied that these expenses were necessary and/or reasonable.  The court a quo, however, found that the appellants could not be heard to dispute the quantum of the administration costs, mainly because of a settlement agreement entered into between the parties hereto on 26 November 2013.  On the view that I take of the matter, it is not necessary to give further attention to the issue of the extent or reasonableness of the administration costs.

The principal duty of a provisional liquidator is to look after the property of the company in liquidation and preserve the status quo until the appointment of a final liquidator.  A provisional liquidator should therefore not be given powers to do what may amount to a liquidation of a company prior to the appointment of a final liquidator.  For this reason our courts have repeatedly held that only in exceptional circumstances should authority be granted to a provisional liquidator to sell the assets of a company.  See Ex parte Klopper N.O., in re Sogervim SA (Pty) Ltd (in liquidation)(Sogervim SA intervening) 1971 (3) SA 791 (T) at 797A-F and Ex parte Paterson N.O., in re Goodearth Estates 1974 (4) SA 281 (ECD) at 282F.  This was recognised by the court a quo.  It found that the past and future administration costs constituted exceptional circumstances justifying its order.

By the time that the respondents launched their application, the first meeting of creditors and members and appointment of final liquidators should already have

taken place.  Only 10 days’ notice of these meetings is required.  It appears that the companies have only two possible creditors, Standard Bank and Mr Viljoen.  The members of the companies are known and limited.  One cannot enter into speculation that there may have been some unspecified obstacle or delay in respect of the first meetings in terms of section 364(1).  Therefore, when the matter served before the court a quo, it should have regarded the appointment of final liquidators as imminent.  The respondents did not pay their agent and the agent succeeded in managing its account in respect of administration costs at least until the application was launched.  The main concern then was the future administration costs.  On this basis there were no exceptional circumstances justifying the sale of the farms by the provisional liquidators.  The court a quo ought to have dismissed the respondents’ application with costs. HELD: The appeal is upheld with costs. The order of the court a quo is set aside and replaced with an order dismissing the application with costs.

Nation Unlished Trading CC t/a Engennering Drawing And Design v Bulk Petroleum Supplies (Pty) Ltd (4859/2016) [2016] ZAWCHC 70 (10 June 2016)

This is an application for the provisional liquidation of the respondent. This application was preceded by an application for condonation for the late filing of the answering affidavit and the respondent’s heads of argument which were submitted in Court during the hearing of the matter.

Turning to the merits of the case, the applicant alleges that it is a creditor of the respondent in that it is owed an amount of R486 600.00 by the respondent resulting from an oral agreement that it entered into with the respondent for the purchase and delivery of diesel.

It is alleged by the applicant that on or about 26 March 2015 the parties entered into an agreement at Boksburg or alternatively in Mossel Bay with the applicant duly represented by Jacobus Johannes Bezuidenhout (‘Bezuidenhout’) and Michael Neil De Koning (‘De Koning’) and the respondent represented by inter alia David Myburgh (‘Myburgh’).

In terms of the agreement no order will be processed unless full payment of the order was received by the respondent. The applicant received a pro-forma invoice dated 26 March 2015 from the respondent.

On 27 March 2015 the applicant settled the full outstanding amount of R756 600. The applicant alleges that it fully and duly complied with all its obligations under the agreement pursuant to payment it made to the respondent.  It further alleges that the respondent failed to comply with its obligations under the agreement and failed to deliver the purchased diesel either timeously, fully partially or at all.  The respondent having failed to deliver the diesel undertook to repay the purchase price to the applicant but has to date paid back only a portion, to wit R270 000.  The respondent made three payment, to wit R70 000 on 28 April 2015, R100 000 on 5 May 2016 and R100 000 on 26 June 2015. In the result, the applicant alleges that it is owed by the applicant an amount of R486 600.

On 19 January 2016 a letter of demand was sent in terms of section 345 of the Companies Act No. 61 of 1973 (‘Companies Act’), demanding payment in the sum of R486 600 within 21 days after receipt thereof. 

The respondent admits that it received the amount, via its director, Myburgh. It admits that on or about 26 March 2015, it directed a pro-forma invoice to the applicant to confirm the amount of R756 600 that was due and owing to the respondent for the procurement and delivery of 70 000l of 500ppm diesel.

After having received the pro-forma invoice the respondent received proof of payment of the amount R756 600 on 27 March 2015.  The respondent alleges that it does not stock petroleum nor does it purport to do so.  It alleges that on or about January and March 2015 allocation holders such as Kish Gas Petroleum (Pty) Ltd C & C Pat Log (Pty) Ltd were contracted and paid to deliver the fuel.  The fuel was ordered and paid for by itself.  It attaches notices of payment in the amounts of R712 880 and R354 818.10, which were actioned on 8 January 2016 and 27 March 2015 respectively.

The orders having been placed, the allocation holder was required to deliver the fuel. The respondent, according to it, complied with its obligations in terms of its agreement that had been entered into and in the circumstances to fulfil its obligations except for the petroleum having not been delivered by the subcontractor. According to it the applicant was fully aware of the fact that this is the way in which the respondent conducted its business.  It alleges that the party to whom the money was paid in order for the fuel to be delivered failed, alternatively refused to deliver the petroleum product.

 As soon as Myburgh, who deposed to the answering affidavit, became aware of this, he demanded that the money be repaid, this was not done and it subsequently resulted in these proceedings.

 From the date of when the order was placed by him, that is Myburgh, with the allocation holder to purchase and deliver the fuel in question, he was in contact with the applicant’s duly authorised representative Bezuidenhout.  He and Bezuidenhout were in consistent discussion and negotiations pertaining to the non-delivery of the fuel indicating to him that there is an issue and the respondent was trying to resolve it. Myburgh then approached the applicant informing them of problem in good faith and tendered payment of the amount which had been paid to him for the fuel. 

The purpose of him engaging with the applicant at the stage when the fuel was not delivered was merely an attempt to settle the issue and restore good relations while pursuing the party who misappropriated the funds for the petroleum.  This attempt was merely done for purposes of settlement and was not to be misconstrued as an acknowledgment alternatively admission of any debt.

The law with regards to an opposed application for provisional winding up of a company is established.  As was held in Kyle and others v Maritz and Pieterse Inc. 2002 (3) All SA 223 (T) at para 12, in these kinds of proceedings, the onus is on the applicant to establish that he or she is a creditor with requisite locus standi  to apply for the winding up of the respondent. The applicant must first establish that it is entitled to a provisional order on a prima facie basis.  It must also show that the balance of probabilities on affidavits is in its favour.

[23] It was held in Orestisolve (Pty) Ltd t/a Essa Investments vs NDFT Investments Holdings (Pty) Ltd & Another 2015 (4) SA 449 (WCC) at para 8 that, ‘even if the

applicant establishes its claim on a prima facie basis, the Court will ordinarily refuse the application if the claim in bona fide disputed on reasonable grounds’.  Where the applicant has shown the debt prima facieexists, the onus is on the respondent to show that it is bona fide disputed on reasonable grounds. (See Badenhorst vs Northern Construction Enterprises (Pty) Ltd 1956 (2) SA 346 (t) at 347 H – 348 C).

[24] Moseneke J (as he then was) observed as follows in Kyle supra at para 13 :

‘Where the claim of the applicant is disputed the respondent bears the onus to establish the existence of a bona fide dispute on reasonable grounds.’ 

He further held that:

‘The dispute raised by the debtor company must be in good faith. It must be genuine and honest. The dispute so raised must of course be based on reasonable grounds. Therefore a defence which is inherently improbable or patently false or dishonest would not qualify as a bona fide dispute:

‘a debt is not bona fide disputed simply because the respondent company says that it is disputed. A dispute must not only be bona fide or genuine but must be on good, reasonable or substantial grounds. The expression ‘genuine dispute’ connotes a plausible contention requiring the same sort of consideration as ‘serious question to be tried.’  

[39] For these reasons, I am satisfied that the applicant has established that it is a creditor of the respondent and that the respondent is indebted to it. I am not persuaded that the respondent has a bona fide defence which is disputed on reasonable grounds.  I cannot find on the papers that the respondents are genuine in disputing the claim and that the claim was bona fide disputed on reasonable grounds.  The dispute is based on vague, ambiguous and contradictory statements and it is difficult to find it reasonable. The respondent in my view seeks to create a dispute merely to avoid being wound-up; it has not discharge its onus in my view to show that the indebtedness is disputed on reasonable grounds as required by law.

Inability to pay its debts and the court’s discretion[40] The applicant relies on the presumption created by section 345(1) (a) that the respondent allegedly was unable to pay its debts cause after it was called upon to pay the remainder of its indebtedness within 21 days of receiving the demand.  It failed to do so and accordingly was deemed to be unable to pay its debts for the purposes of section 345(f). 

[41] Section 345(1) (a) creates only a rebuttable presumption, one would need to investigate whether the presumption has been rebutted by evidence that the respondent is not commercially insolvent. Alternatively the question would be whether despite the deemed inability to pay debts, the court’s discretion should nevertheless be exercised. (See Orestisolve supra  at para 71).

[42] The respondent has placed no facts before this Court to show that notwithstanding the deeming provision it is in fact able to pay its debts and thus not commercially insolvent.

[43] The respondent has failed to place any fact before this court to provide any insight into it financial position except a bald statement that it has operated successfully since the commencement of its operations until the date of the

answering affidavit and has potential to grow further only in the event of it being able to trade.

The respondent is placed under provisional liquidation in the hands of the Master of the High Court.

Loots v Nongoma Medical Centre CC and Another (5639/2016) [2016] ZAWCHC 76 (24 June 2016)

 This is an application for business rescue proceedings in terms of section 131 of the Companies Act, No. 71 of 2008 (‘the Act’). This application is one of many proceedings that have been brought by the applicant (‘Loots’) together with others whom I will mention later in this judgment.

The application is opposed by the intervening party (‘ABSA’) who was granted leave to intervene as a creditor on 25 May 2016. Gleaning from the Loots’ heads of argument, ABSA’s locus standi is placed in issue.

The respondent (‘Nongoma’) is a close corporation currently in liquidation and Loots is of the view that Nongoma can be a viable business if it were to be placed under supervision in terms of the Act.

Loots brings this application on the basis that he is a creditor of Nongoma and the owner of 100% of the membership interest in Nongoma which he purchased on 15 April 2014.  In regard to his claim as a creditor, he alleges that he had a loan with Nongoma which stood at an amount of approximately R839 295.30 as at January 2011. This loan, he alleges, was in respect of rental income due to him for sub-letting a portion of the property of Nongoma which he loaned to Nongoma for purposes of payment of its obligations.

[5] In regard to his claim of ownership of 100% of the membership interest in Nongoma, Loots obtained a court order on 12 May 2015 ordering the Companies and Intellectual Property Commission (‘CIPC’) to amend its records so as to reflect him as Nongoma’s sole member pursuant to failed attempts he made to the CIPC to register him as Nongoma’s sole member. The CIPC has to date not effected such registration.

[6] As a result of the above assertions Loots contends that he is an ‘affected person’.

[7] ABSA alleges that this application has not been brought in good faith by Loots.  It contends that the purpose of the application is not genuinely to rescue Nongoma from financial distress and liquidation. Its real purpose is to obtain the suspension of the liquidation proceedings in respect of Nongoma and for Loots’ own personal benefit to enable him to further unlawfully collect rental from Nongoma’s tenants that ABSA is entitled to. According to ABSA this amounts to abuse of court process.  Loots’ standing is also placed in dispute by ABSA.

[8] Before I deal with the contentions raised by the parties, it is convenient to start with the history of this matter and the role players involved.

Role players[9] This matter has a long history and Loots has been central to many of the proceedings that have been brought before various courts dealing with issues surrounding Nongoma, some of which involved the loan agreement between Nongoma and ABSA.

[10] Nongoma is a property owning close corporation with its only asset being an immovable commercial property in Nongoma, Kwa-Zulu Natal.  It presently has two members registered on the records of the CIPC being Anna Christina Barnard and Lionel Patrick Barnard (‘the Barnards’).  The Barnards allegedly left South Africa and are now living abroad.

[11] Loots is a medical doctor who resigned as a member of Nongoma during 2001.  Another person who featured in many of the proceedings and in this current application is Hester Elizabeth Van Rooyen (‘Van Rooyen’). Van Rooyen also resigned as a member of Nongoma during 2007. Van Rooyen is allegedly unemployed. Both she and Loots referred to each other as ‘partners’.

[12] ABSA alleges that it is a secured creditor of Nongoma and holds a first registered mortgage bond over the immovable property of Nongoma situated at Nongoma, Kwa-Zulu Natal. 

Factual background[13] On 29 November 2010, ABSA issued summons in this Court against Nongoma as principal debtor and Van Rooyen and the Barnards as sureties for payment in the amount of R 792 850.68.

[14] Default judgment was granted against all the defendants on 19 September 2011.  Van Rooyen applied for rescission of this judgment on 13 February 2012.  Loots supported this application.  On 29 May 2012, Van Rooyen filed a notice to amend her application and joined the Barnards as applicants to the application.  In addition to Van Rooyen’s application, Loots brought a separate rescission application on behalf of Nongoma and attested to a supporting affidavit in respect thereof. ABSA opposed the rescission application by filing an opposing affidavit on 16 September 2013.  The rescission was dismissed with costs by Van Rooyen AJ on 25 August 2015. Subsequent application for leave to appeal the dismissal of the rescission application was also dismissed with costs on 21 October 2015.

[15] On 22 March 2011, ABSA had applied for the liquidation of Nongoma which was opposed by both Loots and Van Rooyen on 13 May 2011.  This application was withdrawn because Nongoma had apparently been deregistered which rendered the application defective.

[16] On 21 June 2011, Loots brought an application for a conditional business rescue of Nongoma on an urgent basis under case number 12401/2011. He made no attempts to enrol the matter until ABSA which was also the intervening party in that application did so.  The business rescue application was dismissed with costs on 7 October 2015.

[17] On 7 November 2011 ABSA again lodged an application for the liquidation of Nongoma. The CIPC company report indicates cancellation of deregistration process on 26 October 2011. Loots applied to intervene in the liquidation proceedings on 13 February 2012.  He also filed an affidavit in opposition to the liquidation application purportedly on behalf of Nongoma. The liquidation was delayed as a result of the business rescue application. On 7 October 2015 a provisional liquidation order was granted against Nongoma.  On 29 October 2015, Loots filed an application to intervene in the liquidation proceedings and an opposing affidavit.  The final liquidation order was granted on 11 February 2016.

[18] On 11 December 2012, Loots and Van Rooyen had launched an action in the Kuilsriver Magistrates’ Court against ABSA alleging that payment of the debt in respect of which the default judgment had been granted in the High Court had created a false impression of indebtedness that misled both Nongoma and Van Rooyen and resulted in amounts totalling R 43 548.00 being paid to ABSA in error.  That action was dismissed with costs on 19 November 2015.

[19] Another application was brought in the Nongoma Magistrates’ Court by Loots, represented by his attorney at the time Mr Rob Green (‘Mr Green’), in terms of which an order was made that tenants had to pay their rental into the trust account of Mr Green.  It is not clear on what basis Loots persuaded the Magistrate that he was entitled to such an order.

[20] ABSA then brought an application against Mr Green for repayment of rentals that Mr Green admittedly collected and held in trust.  Mr Green opposed the application and admitted to having received an amount of R 437 074.01 in respect of the rental for the period of 1 June 2011 until 28 February 2013 allegedly as per mandate from Loots.  He also stated that he disbursed as legal fees to Rob Green & Associates, his law firm, an amount of R 239 884.93  from 1 June 2011 until 28 February 2013  from the said amount on instructions of Loots. The remainder he disbursed in accordance with Loots’ instructions, which information he alleged he could not divulge due to attorney-client privilege.

[21] On 6 March 2014 Veldhuizen J ordered Mr Green to pay to ABSA the amount of R 437 074.01 as well as the costs of that application. Veldhuizen J held that Loots and/or Mr Green had no right to collect any rental from tenants of Nongoma and that doing so was unlawful.

[22] ABSA executed on the judgment and the Sheriff rendered nulla bona returns. Mr Green failed to make any payments towards the judgment by Veldhuizen J. His conduct is, according to ABSA, the subject of scrutiny by the Law Society and the Fidelity Fund. 

[23] On 28 May 2012 Loots represented by Mr Green had instituted an action against the Barnards in the amount of R 284 350.00 alleging that Loots was the tenant of Nongoma and that he ceded the right to occupy certain premises to the Barnards. He further alleged that failure by the Barnards to effect payment of Nongoma’s obligation, inter alia, in respect of the amounts due to ABSA entitled him to payment. Green attested to a supplementary affidavit claiming that Loots had to be paid a rental amount of R6050 per month and over the period it accrued to R 284 350.00. Judgment was granted by default in favour of Loots for that amount.

[24] There are other court proceedings which I do not find it necessary to all mention.

[28] Before I deal with whether those requirements have been met, it is important to touch on the important point made by Henochsberg on the Companies Act 71 of 2008, Volume 1 at 464 (12) that:

‘The application must not be an abuse of process and should be brought in good faith and for a proper purpose ie for the “rescue” of the company…and not for an ulterior motive such as to suspend liquidation or for a personal benefit.’

[29] As was observed by Gamble J in Blue Star Holdings (Pty) Ltd v West Coast Oyster Growers CC 2013 (6) SA 540 (WCC)  at para 20: ‘a business rescue application might well be used by an obstructive debtor intent on avoiding the

obviously inevitable as part of its ongoing strategy to hinder a creditor from pursuing its lawfully permissible goal, and, experience tells one that the business rescue proceedings may then be advanced by the debtor with a degree of tardiness inversely proportional to the alacrity with which it initially approached the court’[30] ABSA alleges that the present matter is a case of a person who seeks to obtain suspension of the liquidation for his own personal benefit and for him to further collect rental from the tenants of Nongoma unlawfully as he did before.

Existence of ABSA debt and ABSA’s locus standi as a creditor[31] In the current application Loots disputes that Nongoma is indebted to ABSA, effectively challenging ABSA’s locus standi as a creditor to Nongoma. This is in my view is absurd as shall be seen in this judgment.

[32] It has been common cause that ABSA is a creditor of Nongoma since it instituted action to enforce its debt. In all previous proceedings it was accepted by all involved, including Loots that ABSA entered into a written loan agreement with Nongoma on 19 August 2002 in terms of which ABSA  lent and advanced an amount of R1 117 485.26 to Nongoma. Nongoma failed to pay instalments in terms of the loan timeously, and as agreed. It was in arrears as early as October 2004.  

[33] On 21 February 2002, the Barnards and Van Rooyen signed a document titled ‘ALGEMENE SESSIE” in terms of which Nongoma ceded all its rights arising from existing and future contracts of lease in respect of its premises to ABSA.

[34] The existence of a debt was admitted on numerous occasions. In the replying affidavit of the present matter, Loots now disputes this debt.  He alleges that the “admissions” in the “various affidavits” referred to by Mayer were prepared under the misguided influence of ABSA and its legal representative’s misleading and false information. This is surprising and disingenuous because not only was a default judgment granted in ABSA’s favour, Loots and Van Rooyen filed rescission applications where they did not challenge the existence of the debt. Instead in paragraph 10 of  her affidavit in support of her rescission application, Van Rooyen stated that her defence was ‘based, inter alia,  on the fact that the, Respondent’s[ABSA] actions by not acting timeously and reasonably has caused prejudice to the Applicant[Van Rooyen]….had the Respondent [ABSA] acted reasonably and timeously not only would the debt have been extinguished – it was a 10 year term loan agreement initiated on 19 August 2002 – but Respondent[ABSA] would have taken cession of the leases in terms of the loan agreement and ensured collection of rentals and thus payments of the amount owed to them.’[35] Loots repeated similar allegations in an affidavit in support of the rescission application purporting to act on behalf of Nongoma. He mentioned, inter alia, that: ‘...It is my submission that Respondent acted with undue delay and furthermore it is my submission that if Respondent had acted reasonably and timeously, it would have taken cession of rental lease agreements which Applicant (Nongoma) had ceded to Respondent and ensured collection of the rentals and thus payments of the amount owed to Respondent.’ This disingenuity cannot be accepted. Both Loots and van Rooyen allege that they were legally represented by Mr Green. They unequivocally admitted indebtedness to ABSA and raised some defences which were rejected by Van Rooyen AJ as being without merit, not bona fide and opportunist. Application for leave to appeal Van Rooyen’s AJ’s judgment was

dismissed. As things stand, the judgment granted in favour of ABSA on 19 September 2011 stands.

[36] Loots disputes the existence of ABSA’s debt on the basis that the loan agreement by ABSA was sold to an entity called Home Obligors Mortgage Enhanced Securities (Pty) Ltd (‘Homes’) in a process of securitisation. When looking at the record of previous proceedings, it appears that the issue of securitisation was raised by Loots in his opposing affidavit to the liquidation application as a new fact for consideration. It was not entertained by the Court hearing that application as his opposition was dismissed. He now endeavours to present this as a new fact before this Court, which is clearly not the case. This manner of litigating cannot be allowed and this matter is evidently res judicata.

[37] These allegations are in any event denied by ABSA as being false. ABSA alleges that records at the Deeds Office contradict the allegation made by Loots. It also disputes the allegation also because only residential mortgages may be securitised. The loan to Nongoma is a commercial loan. Nongoma’s property is zoned as commercial property and cannot form part of any securitisation practise. ABSA further alleges that the system it uses does not afford a possibility of commercial properties and commercial loans being included in any securitisation process. Based on the well-known Plascon-Evans rule (Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A) at 634-635), there would have been no reason not to accept ABSA’s version.

Previous business rescue proceedings[38] Loots previously brought an application for the business rescue of Nongoma and that application was dismissed. The basis of those proceedings was that he was a creditor of Nongoma in the sum of R839 295.30, as the rental income due to him for sub-letting a portion of the premises, in the amount of some R6050 per month, was loaned to Nongoma for purposes of Nongoma’s obligations in respect of the loan from the bondholder, ABSA. The second basis was that Loots had obtained a Power of Attorney in 2011 from the remaining members of Nongoma, the Barnards.

[39] The first part of the above bases is similar to the current application. The second part relates to the Power of Attorney which was the subject of previous litigation before Veldhuizen J. This Power of Attorney purportedly signed and given by the Barnards on 13 January 2011 nominated Loots and van Rooyen as follows:

‘…to be our Agent for managing and transacting our business in THE REPUBLIC OF SOUTH AFRICA AND IN EVERY TERRITORY OR COUNTRY ANYWHERE IN THE WORLD with full power and authority to sell all fixed property and settle all outstanding bonds registered in our name.’

[40] Veldhuizen J found at paras 12 and 13 of his judgment dated 6 March 2014 in the matter of ABSA Bank Limited v Robert Peter Green, case number 18662/2013 dated 6 March 2014 that:

‘[12]If regard is to be had to the history of the matter and the steps which the applicant [ABSA]took to recover the money Nongoma owed it then should have been clear to Loots and the respondent [Mr Green] that they did not have a mandate to collect the rentals due to Nongoma. Even if the power of attorney gave Loots the power to manage Nongoma’s affairs it did not give him a mandate to disburse the rentals that were collected in the manner admitted by the respondent [ABSA].

[13] In the result I conclude that the respondent failed to prove that he had a mandate to collect and disburse the rentals due to Nongoma.’

[41] In the present matter, Loots no longer relies on the Power of Attorney for obvious reasons. He now relies on a lease agreement which he alleges was entered into between Nongoma and himself on 1 February 2011. Van Rooyen signed this lease agreement on behalf of Nongoma, purportedly by virtue of the same Power of Attorney dated 13 January 2011, that I have alluded to above. The commencement date in the lease agreement is stated as 1 February 2011 and termination date is 31 July 2020.

[42] In terms of clause 4 of the lease agreement, subject to clause 14.2, Loots would pay a monthly rental of R50.00 inclusive of VAT and other taxes and levies. Clause 14.2 states that :

‘At  the sole discretion of the Tenant   [Loots], the Tenant may consent (verbally or in writing) that the Landlord [Nongoma] may let out, in its own name, any buildings or portion of land situated on the Property. In this event any or all rentals received by the Landlord (or any other income received by the Landlord as a result of this consent) will be appropriated by the Landlord towards the maintenance, management and expenses of the Property or of the Landlord (including payment of any creditors of the Landlord) as will be allocated and directed by the Tenant in its sole discretion. During the time which any rentals are being appropriated by the Tenant as per clause 14.1, or such letting of land or buildings by the Landlord in its own name is allowed (as per clause 14.2) the rental payable by the Tenant (as per clause 4) will be waived.’[43] First, it is rather strange that this lease agreement was not presented in court during the proceedings before Veldhuizen J as a document which entitled Loots to collect the rental. The curiosity arises because this agreement was purportedly concluded long before Veldhuizen J’s judgment of 2014 was delivered. Clearly the lease agreement would have been pivotal in convincing the Court of Loots’ entitlement to the collection of the rental. This lease agreement was also not raised in the previous business rescue application proceedings.

[44] In this regard, ABSA’s allegation that this document may have been contrived in order to support the current application and be presented as the latest premise since Loots could not use the Power of Attorney as the basis to collect rental, is not far-fetched at all.

[45] The second issue which is concerning about this lease agreement is that Loots is only obliged to pay R50.00 rental amount to Nongoma whereas Nongoma according to him, currently has funds of R45 000 per month available to pay its costs, maintenance and expenses [from sub-leases]. It does not make sense that the potential rental income received by Loots is R45 000 a month for his sub-leases but he only pays R50.00 to Nongoma.

[46] A further disturbing factor is that Loots declines disclosing information or substantiation in this regard on the basis it is ‘private and confidential’ and pertains to himself only. This clearly does not appear to come from an applicant determined to convince the Court by demonstrating candidly that reasonable prospects exist that Nongoma can be rescued.

[47] The nature of this lease agreement and the fact that it was never disclosed during the proceedings before Veldhuizen J points to one inescapable conclusion

that the lease agreement seems to be a strategy designed to circumvent the findings in Veldhuizen J’s judgment. This is all the more why it is necessary for the liquidation process to continue so as to investigate all these matters.

[48] For the reasons outlined above alone, the application is not bona fide and should be dismissed. The merits which I will nevertheless touch on are not convincing either.

Requirements of the Act for a business rescue

Financial distress[49] There has been no attempt to acknowledge that the company is in financial distress. Loots instead lays the blame on ABSA as being responsible for bringing Nongoma into financial distress. He seeks to demonstrate that Nongoma is a sound business with its assets exceeding liabilities and is commercially solvent. In all of this supposed solvent state of Nongoma, ABSA as a creditor remained unpaid.

[50] In Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386 LTD    2012 (2) SA 423 WCC at para 24 the court held that:

‘while every case must be considered on its own merits, it is difficult to conceive of a rescue plan in a given case that will have a reasonable prospect of success of the company concerned continuing on a solvent basis, unless it addresses the cause of the demise or failure of the company’s business, and offers a remedy therefor that has a reasonable prospect of being sustainable...’[51] Loots has not fulfilled this requirement, instead he puts blame on the legal proceedings brought by ABSA and ABSA’s alleged misleading information about the status of the loan agreement as being the cause of its financial distress. This allegation is lacking in substance and is without foundation.

Reasonable prospects[52] The courts have held that ‘a reasonable prospect’ is a lesser requirement than a reasonable probability. (See Oakdene Square Properties (Pty) Ltd v Farm Bothasfontein (Kayalami) (Pty) Ltd and Others 2013 (4) SA 539 (SCA) at para 29).

[53] The Court in Oakdene supra held at para 29:

‘On the other hand, I believe it requires more than a prima facie case or an arguable possibility. Of even greater significance, I think, is that it must be a reasonable prospect – with the emphasis on ‘reasonable’ – which means that it must be a prospect based on reasonable grounds. A mere speculative suggestion is not enough. Moreover, because it is the applicant who seeks to satisfy the court of the prospect, it must establish these reasonable grounds in accordance with the rules of motion proceedings which, generally speaking, require that it must do so in its founding papers.’[54] The lease agreement that I have already dealt with is presented as the only evidence to support a reasonable prospect of rescue. I have dealt with my impressions of this lease agreement. Loots alleges that he is leasing the entire property from Nongoma and is subletting the commercial building situated in the property. He further alleges that there is no rental amount payable by him to Nongoma. He further contends that Nongoma currently has funds of about R45 000 a month available to pay for its costs, maintenance and expenses. The lease entitles him to receive all the rental amounts payable from shops and offices on Nongoma’s

property but yet he refuses to disclose any information regarding the total amount of the rental and on what basis thereof is it being made available to Nongoma. I am in agreement with ABSA that, in these circumstances, the lease agreement cannot be held to be genuine. It appears to have been created for the purposes of undermining the cession that ABSA has to all the rental payable in respect of Nongoma’s premises.

[55] I am inclined to accept ABSA’s supposition that all these efforts, including the sudden denial the existence of ABSA’s debt are attempts to get the debt removed so as to present Nongoma as being commercially viable as a business. In the process, other creditors of Nongoma have not been disclosed and what amounts are owing to them. Furthermore, no information has been given regarding the business rescue practitioner apart from the mentioning of his or her name in the notice of motion. No details of any proposed business plan have been outlined either, so as to satisfy the Court about the reasonable prospect of rescuing Nongoma.

[56] In the circumstances, Loots has failed to show any grounds to satisfy the court that there is a reasonable prospect of rescuing Nongoma from financial distress and liquidation. If ever there was a case that should be subjected to the scrutiny it is this one.

[57] I conclude with the words of Eloff AJ (as he then was) in Southern Palace Investments 265 v Midnight Storm Investments 386 2012 (2) SA 423 (WCC) at 426 C – D where he stated that:

‘It is necessary that an application for business rescue be carefully scrutinised so as to ensure that it entails a genuine attempt to achieve the aims of the statutory remedy. The instant case is one where such attempt was not discernible from the affidavits filed of record’

[58] For these reasons, the application for business rescue cannot succeed.

[59] As to costs, ABSA seeks costs on an attorney and client scale. I do not need to spend much time on this issue save to say that the Loots’ conduct as demonstrated above evidently justifies costs on an attorney and client scale. The court must show its discontent with the manner in which Loots has conducted this litigation. A number of issues raised in this application were raised and determined in previous proceedings. Furthermore, Loots did not disclose in his founding affidavit various proceedings previously brought before other courts which had an impact on this application. Had this application not been opposed by ABSA, those proceedings and the content thereof would possibly not have come to this Court’s attention. Apart from that, I am satisfied that based on my findings in this matter a cost order on attorney and client scale is warranted.  I must mention in passing my concerns about the persistent litigation surrounding the business of Nongoma, which is undoubtedly costly. This in my view cannot be supporting the interests of Nongoma and must at some point come to an end.

The application is dismissed with costs on attorney and client scale.

Kingdom Films and others v Kaplan NO and another [2016] JOL 36001 (GJ)

Directors- Aquilian action against-when possible

Particulars of claim – Exception to – Failure to disclose cause of action – Onus of proof

The respondents were appointed as final liquidators of a company (“KWS”) which operated in the tourism industry. They brought an Aquilian action against 11 defendants. Having delivered their particulars of claim, they were served with a notice of exception from the defendants, indicating that the particulars of claim failed to disclose a cause of action. Although offered an opportunity to amend the particulars of claim, the respondents did not share the view of the excipients and declined to amend. That led to the raising of the exception in the present proceedings.

The excipients were accused of acting unlawfully, or unlawfully failing to act, thereby causing harm to KWS in the form of as prospective financial loss. That potential financial loss was the “damage” which the respondents sought to recover from the excipients. It was that aspect of the claim, as reflected in the particulars of claim, that formed the subject matter of the exception.

The third excipient (Richardson) was a director of KWS. The respondents’ cause of action centred around Richardson’s having entered into an agreement on behalf of KWS, so as to provide himself with the opportunity to extricate himself from his co-shareholder by destroying the business of KWS while at the same time diverting all its business and business opportunities to some of the other excipients. The amount claimed by the respondents as damages represented a loss of profits for 20 years from the date the agreement referred to above was cancelled.

In the alternative, the respondents claimed against the sixth excipient, the amount by which the alleged “potential value of the business of KWS” was diminished, on the basis that it had unlawfully repudiated the said agreement.

Held that the excipients bore the onus of showing that the respondents had failed to disclose a cause of action in their particulars of claim. They would only discharge such onus if they were able to demonstrate on every possible interpretation that the particulars of claim, read as a whole, failed to disclose a cause of action.

The essence of the exception was that the law of delict only recognises a claim for damages if the plaintiff had suffered at least some of the damages as at the date when the particulars of claim were delivered. As at that date, the plaintiff must show that its patrimony has been diminished. Until its patrimony has actually been diminished there is no claim recognisable in law. The claim instituted by the respondents did not represent an actual loss, but potential loss.

Damage or loss is one element of an Aquilian action. The other four are act or omission, unlawfulness, fault and causation. Each element has to be proven on a balance of probabilities by the plaintiff for the claimant to succeed in its claim.

Our law recognises prospective pure economic loss as part of the damages sustained by a plaintiff that calls for compensation. However, the common law rule is that prospective damages may be awarded as ancillary to accrued damages, but such a claim has no separate, independent force as ground for action. As KWS had yet to suffer any damage, it did not have a cause of action. The exception was therefore upheld.

Prior to being placed under final liquidation KWS primarily conducted the business of tourism venture. The third excipient, Kevin Richardson ("Richardson"), was a director of KWS. He held 50% of the issued share capital of KWS. The other 50% was held by Alan Friedland ("Friedland").

The excipients all stand accused of acting unlawfully, or unlawfully failing to act, with fault and thereby causing harm to KWS, which harm is identified as prospective financial loss. This potential financial loss is the "damage" they seek to recover from the excipients. They seek other relief too. However, while the claim for monetary compensation for the damages is by no means the only relief they seek, it is a crucial aspect of the relief claimed. It is this aspect of the claim, as reflected in the POC, that forms the subject-matter of the exception.

. The averments: Richardson misappropriated monies and other assets belonging to KWS;Richardson misappropriated income or other benefits of KWS and essentially had these transmitted to Kingdom Films, KRWS, The Lion Whisperer and Predator;Richardson fraudulently orchestrated the cancellation of the Welgedacht agreement;Richardson engineered a situation where KWS found itself unable to pay its debts so that KWS is liquidated;Richardson and/or Kingdom Films, KWRS, The Lion Whisperer and Predator unlawfully and improperly competed with KWS

Mabote and Others v Van Der Merwe NO and Another (2015/40324) [2016] ZAGPJHC 185 (8 July 2016)

Business rescue-s133(1)(b) of the Companies Act, 71 of 2008 (the Act)-leave to commence legal proceedings -matter moot-costs -prima facie claim -what is-Redpath case not followed

The applicants intend instituting such proceedings against African Bank Investments Limited (ABIL), as co-defendants, with Ellerine Furnishers (Pty) Limited (in business rescue) (“EF”); and Ellerine Holdings Limited (in business rescue) (“EHL”).  ABIL was placed under business rescue with effect from 5 June 2015 but, as will appear hereafter, is no longer under business rescue. 

The relief sought is thus moot and the only live issue is the question of costs.  In order to properly determine the incidence of costs, it is necessary to give consideration to the merits of the application. 

Neither EF, EHL nor ABIL’s business rescue practitioners has disputed the applicants’ entitlement to payment of the amounts claimed by each of them, being, in each case, the full award amount stipulated in the offer, but each disputes liability to pay the award amount.  The business rescue practitioner of EF supports the application but contends that ABIL is liable for the amounts claimed.  He has further indicated that in the event that litigation is commenced by the applicants against EF it intends to raise a point of non-joinder of ABIL to the proceedings unless ABIL is cited as a party to such proceedings.

In my view, an applicant seeking to obtain leave under the section must as a minimum requirement establish a prima facie case against the company in business rescue.  

[28] What needs to be fully set out in any application for leave are the reasons why legal proceedings against the company in business rescue are necessary and appropriate (see Merchant West (supra)).  As mentioned above, the Court has a wide discretion which must be dictated by the interests of justice.  There is no closed list of the factors that may be taken into account in deciding whether or not to grant

leave as each case must be determined on its own facts.  Without being prescriptive in any way, the following considerations are relevant:  (a) The effect that the grant or refusal of leave would have on the applicants’ rights as opposed to other affected persons and relevant stakeholders;  (b) The impact that the proposed legal proceedings would have on the well-being of the company and its ability to regain its financial health;  and (c) whether the grant of leave would be inimical to the object and purpose of business rescue proceedings as set out in sections 7(k) and 128(b) of the Act.

[29] I disagree with the observation in Redpath that leave in terms of s 133(1)(b) may only be granted in exceptional circumstances.  The learned Judge in Redpath did not refer to any authority or provide any reasoning for the conclusion that “exceptional circumstances” should apply generally to an application brought in terms of s 133(1)(b) of the Act.  If the legislature had intended to limit the grant of leave to “exceptional circumstances” that test would have been expressly stated in the section.  Instead, the Court is given wide powers not only to grant leave, but also to determine the terms on which such leave is granted.

[35] Based on the averments set out in the founding affidavit and those facts in the answering affidavit which the applicants are unable to dispute, I am satisfied that the applicants have at the very least a prima facie claim against either EF, EHL or ABIL, or a combination of one or more or all of them, jointly and severally.

The costs of the application are to be paid by the applicants jointly and severally, the one paying, the others to be absolved. Such costs are to include the costs incurred by the respondents in opposing the application.

Nova Property Group Holdings Ltd and others v Cobbett and another (MandG Centre for Investigative Journalism NPC as amicus curiae) [2016] 3 All SA 32 (SCA)

Company law – Company’s securities register – Access to – Section 26(2) of the Companies Act 71 of 2008 – Interpretation – Section 26(2)conferring an unqualified right of access to the securities register of a company – Person’s motive for access not relevant – Right of access not subject to the provisions of the Promotion of Access to Information Act 2 of 2000.

The first respondent (“Cobbett”) was a financial journalist who specialises in the investigation of illegal investment schemes. The second respondent (“Moneyweb”) was a publisher of business, financial and investment news. They sought to exercise their statutory right in terms ofsection 26 of the Companies Act 71 of 2008 to access the securities registers of the appellants. When Cobbett’s requests were met with refusals, Moneyweb launched an application, in the High Court (the court a quo), to compel the appellants to provide access to it for inspection and making copies of the securities registers within five days of the date of the order.

The court a quo granted the appellants’ rule 35(12) application to compel discovery of documents referred to in Moneyweb’s founding affidavit, but dismissed their rule 35(14) application to compel. Although the court had not decided the main application, it nevertheless pronounced on the proper interpretation of section 26(2) of the Companies Act, in deciding whether to grant the interlocutory relief to

the appellants. It concluded that section 26(2) did not confer an absolute right to inspection of the documents contemplated in the subsection, but that the court retained a discretion to refuse to order inspection.

On appeal, the issues were two-fold. In view of the interlocutory nature of the order of the court a quo, the first issue was whether it was appealable. If found to be so, then the second issue was whether the documents sought by the appellants in terms of rule 35(14) were relevant to a reasonably anticipated issue in the main application. That issue concerned the proper interpretation of section 26(2) of the Companies Act and, in particular, whether it conferred an unqualified right of access to the securities register of a company contemplated in the section.

Held – Section 26(2) of the Companies Act entitles a person who does not hold a beneficial interest in any securities issued by a profit company, or who is not a member of a non-profit company, to inspect or copy the securities register of a profit company, or the members register of a non-profit company that has members, or the register of directors of a company, upon payment of an amount not exceeding the prescribed maximum fee for any such inspection.

On the issue of appealability, the Court began with the decision in Zweni v Minister of Law and Order  [1993] 1 All SA 365 ([1992] ZASCA 197;1993 (1) SA 523) (A) that the dismissal of an application to compel discovery, such as by the court a quo, is not appealable as it is not final in effect and is open to alteration by the court below; not definitive of the rights of the parties; and does not have the effect of disposing of a substantial portion of the relief claimed. However, subsequently, the test was adapted to take into account the equitable and more context-sensitive standard of the interests of justice favoured by our Constitution. In deciding what is in the interests of justice, each case has to be considered in light of its own facts.

Section 17(1) of the Superior Courts Act 10 of 2013 provides for the circumstances in which a judge may grant leave to appeal. Leave to appeal may only be given where the judge is of the opinion that the appeal would have a reasonable prospect of success; or there is some other compelling reason why the appeal should be heard, including conflicting judgments on the matter under consideration; the decision sought on appeal does not fall within the ambit of section 16(2)(a); and where the decision sought to be appealed does not dispose of all the issues in the case, the appeal would lead to a just and prompt resolution of the real issues between the parties. Moneyweb was constrained to concede that the judgment of the court below, although not appealable under the traditional Zweni  test for interlocutory applications to compel discovery, would be appealable under section 17(1) of the Superior Courts Act.

On the question of the proper interpretation of section 26(2) of the Companies Act and, in particular, whether it conferred an unqualified right of access to the securities register of a company, the Court explained the interaction between section 26(2) and the Promotion of Access to Information Act 2 of 2000 and rejected the appellants’ contention that the right of access is subject to the provisions of the Promotion of Access to Information Act. The Court also held that when a company fails or refuses to provide access, the requester is entitled, as of right, to an order compelling access. The question of the motive or purpose is irrelevant.

An unqualified right of access to a company’s securities register is, therefore, essential for effective journalism and an informed citizenry. In conferring an unqualified “right” of access to a company’s securities register in section 26(2) of the Companies Act, the Legislature has chosen to prioritise the right of access to information over the privacy rights of shareholders and companies. In the absence of an express limitation of that right by the Legislature, it is not for the court to limit it on spurious grounds.

The appeal was dismissed with costs.

De Sousa and another v Technology Corporate Management (Pty) Ltd and others [2016] JOL 36298 (GJ)

Company law – Section 252 – Companies Act 61 of 1973 – Claim for relief – Exception

The plaintiffs were the minority shareholders in the first defendant. They sought relief in terms of section 252 of the Companies Act 61 of 1973 (“the Act”). The defendants applied for the determination of a question of law before the other issues. The question (in the nature of an exception) was whether the plaintiffs’ particulars of claim disclosed a cause of action against the defendants under section 252.

It was averred in the particulars of claim that the second defendant had registered a company (“TCM Printing Solutions”) and wrongfully and intentionally caused the business of the first defendant to be given over to that company at no value. It was alleged further that the second defendant had wrongfully caused loss to the first defendant, thereby jeopardising the value of the plaintiffs’ shares therein. The plaintiffs sought an order directing the defendants to purchase plaintiffs’ shares.

Held that the exception could not be sustained as the defendants had misconstrued the particulars of claim as containing discrete causes of action in each of the impugned paragraphs. There was also no basis for their proposition that section 252 did not apply where there was prejudice to all members.

A court is not required to consider each complaint in isolation, but rather the evidence as a whole in deciding whether the controllers of the company have acted in a way giving rise to the alleged prejudice. The Court found the allegations made in the relevant paragraphs of the particulars of claim to be legally relevant to the question of whether the affairs of the first respondent had been conducted in a manner which was unfairly prejudicial to the plaintiffs. The exception was therefore dismissed on that ground alone.

However, the Court also found no merit in any of the defendants’ remaining contentions.

JVJ Logistics (Pty) Ltd v Standard Bank of South Africa Ltd and Others (7076/2015) [2016] ZAKZDHC 24 (22 July 2016)

Business rescue- general moratorium on legal proceedings-exceptions to the moratorium -orders granted prior to the rescue-valid 

Business rescue-section 133 meaning of “lawfully in its possession”

Section 133(1) of the Companies Act, 71 of 2008 (the “Act”) provides for a general moratorium on legal proceedings against a company during business rescue.  There are exceptions to the moratorium that do not feature in this case.  In its material part s 133(1) reads as follows. 

“During business rescue proceedings, no legal proceeding, including enforcement action, against the company, or in relation to any property belonging to the company, or lawfully in its possession, may be commenced or proceeded with in any forum, except - …”

A decision in the present application cannot be reached without first considering the proper construction of the phrase “lawfully in its possession” where it appears in s 133(1).  The issue arises in the context of an assertion by the first respondent, Standard Bank of South Africa Limited, that it is entitled to repossess a Nissan motor vehicle currently possessed by the applicant, JVJ Logistics (Pty) Limited.  Business rescue proceedings commenced in respect of the applicant.  There is a dispute on the papers as to whether those proceedings continue, but, in the view I take of this matter, it is not one that needs be resolved.  I proceed on the assumption that the applicant remains in business rescue.

The relevant facts are not disputed.  The applicant is a transport company.  Its sole director and shareholder calls it a “micro enterprise”.  It has only one vehicle.  It acquired possession of that vehicle under an instalment sale agreement concluded with the first respondent, in terms of which ownership of the vehicle was retained by the first respondent. The applicant fell into arrears with its instalments owed to the first respondent by a considerable margin, as a result of which the first respondent cancelled the instalment sale agreement and instituted proceedings against the applicant seeking an order confirming the validity of the cancellation and an order for the immediate return of the vehicle.  Such orders were granted by this court on 27 March 2015.  The applicant’s business rescue commenced on 9 April 2015 following a resolution taken on 31 March 2015, and the third respondent, Mr. Adrian Vengadesan, was appointed on or about 30 April 2015 to oversee the company during business rescue.

In essence the motor vehicle owned by the first respondent was to comprise the capital of the company, and was put into the statements at a value of R900 000, which approximated the amount which would have been owing to the first respondent in terms of the instalment sale agreement if it had not been cancelled.  The business plan was structured around the proposition that the applicant had managed to conclude a contract in terms of which it would use the vehicle to transport steel products around the country. 

[16] One would think that if any element of unlawfulness attaches to someone’s possession of property, then such property cannot be said to be in the “lawful possession” of that person.  However the temptation to regard that proposition as obvious and decisive of this case, and to close one’s mind to other possibilities, must be sternly resisted especially when considering the meaning of the provisions of the Act dealing with business rescue. 

[21] Possession of corporeal property is a fact; or to put that more accurately, a coincidence of two facts: physical detention of the property coupled with the existence of an intention to possess or keep control of the thing.  The fact of possession does not of itself speak to any right of the possessor to possess the property.  In my view a consideration of the remedy of the mandament van spolie  illustrates this.

[24] It  seems to me that there are two possible meanings to be ascribed to the word “lawfully” in s 133(1) of the Act.  The first is wider than the second.

[25] The first, being the one adopted in Madodza, regards the affected company’s possession of property as unlawful, and therefore not protected by s 133(1) of the Act, whenever the company lacks the so-called jus possidendi, which Professor Silberberg (op cit, page 72) described as “a right which justifies a person’s claim to have a thing in his possession”.   A purchaser under a normal bank instalment agreement reserving ownership to the bank acquires a jus possidendi when put in possession of the property in terms of the agreement; and loses it if the agreement is cancelled.  On this approach the requirement of s 133(1) is that the company’s possession should be lawful when judged from any perspective; or if not that, then lawful when judged from the perspective of any claim by a third party to possession of the property.

[26] The second possibility involves a distinction not unknown to our law between iusta and iniusta possession.  Professor Silberberg (op cit,   page 76) considered this distinction to be one between just and unjust possession.  The learned authors of the 5th edition of his work (Badenhoff, Pienaar and Mostert, 2006) render the same distinction in English as one between lawful and unlawful possession.  In both cases the examples of unjust or unlawful possession immediately dealt with are possession acquired by force or stealth (secretly).   The learned authors of the 5thedition of the work add as a further example of unlawful possession that which is exercised “on sufferance as against the opponent”.  (See page 285).  They accordingly equate the concept of lawful (or just) possession with possession nec vi, nec clam, nec precario, as those terms were used in s 2 of the repealed Prescription Act, 18 of 1943.  (See also LAWSA : Vol.27 : 2ed : para 84.)

[27] From the moment that the contract relating to the vehicle between the applicant and the first respondent was cancelled, the former’s possession of the vehicle was precarious, dependent as it was on the will of the first respondent as to whether it would or would not exercise its right to dispossess the applicant.  Such precarious possession is a not uncommon occurrence in  modern commercial relationships.  I do not think that for that reason alone one can discard the proposition that the legislature required the protected form of possession to be “lawful” in the traditional sense of iusta possessio, so as to exclude from the ambit of the moratorium a claim to return of property if it had come into the possession of the company by force or stealth; i.e. the company fell within the range of examples of unlawful possessors given in Tswelopele, “a fraud, a thief or a robber”.

[28] For the sake of convenient expression, I will refer to the wider concept dealt with in paragraph 25 above as “civil” unlawfulness; and to the narrower meaning canvassed in paragraphs 26 and 27 above as “criminal” unlawfulness.  These are

mere convenient labels, and in using them I intend no detraction from nor any expansion of the scope of the concepts.

[37] I conclude that if the requirement for the operation of the moratorium is merely that the company’s possession should not be criminally unlawful, the potential for a substantial period of operation of the moratorium imposed by s 133(1) of the Act suggests that the burden it would impose on the owner of property is too great to meet the requirement that there should be a balance of rights and interests as contemplated by s 7(k) of the Act.  It should not be overlooked that if s 133(1) protects a company’s civilly unlawful possession of another’s property, it would be difficult to argue that a similar moratorium imposed by a business plan would not be enforceable. The business plan in this case seeks to do just that for a period of over three years.

[38] If the “lawful possession” contemplated by s133 (1) of the Act is any possession which is not unlawful in the criminal sense, then one would expect the provisions of the Act dealing with business rescue to reflect the requirement of s 7(k) that the owner’s rights and interests should be balanced with those of all other relevant stakeholders.  The principal provisions of the Act dealing with the rights of third parties who are not shareholders or employees are those relating to creditors.  The word “creditors” is not defined in the Act.

[39] In insolvency proceedings, a person who has a claim against the estate not sounding in money can be regarded as a creditor for certain purposes. (See Grobler v Grobler’s Trustee 1908 TS 423 at 437 – 438;  Ex Parte Vanqua 1928 WLD 294;  and Mars : The Law of Insolvency in South Africa 9 ed, page 372.)  But the context there is quite different to the present one, as under insolvency law the trustee or liquidator would be bound to return property possessed but not owned by the insolvent, subject to the statutory provisions dealing with uncompleted transactions.

[40] One of the principal rights of a creditor is to vote when the Act provides for stakeholders to do so. A creditor is allocated a “voting interest”.  Section 145(4)(a) of the Act provides that the voting interest of a creditor is “equal to the value of the amount owed to that creditor by the company”.  Section 145(4)(b) deals with the special case of a creditor whose claim would be subordinated in a liquidation.  In that case the claim would be “independently and expertly appraised” with a view to determining what would be realised by the creditor on liquidation, which amount would determine the creditor’s voting interest.

[41] No provision is made for the quantification of the voting interest of a person whose property is possessed by the company without any right thereto vesting in the company.  Nothing is said about such a person having a vote at all. That suggests strongly that such a person is not regarded as a creditor of a company in business rescue.  It is inconsistent with the intention behind the Act that the rights of such an owner should be trampled upon by a moratorium in the same way as are those of creditors whose claims sound in money, but that only the latter should have decision-making rights and powers in connection especially with the formulation and adoption of a business plan.

PROTECTION OF PROPERTY INTERESTS

[42] If, upon a proper construction of s 133(1) of the Act, a company in business rescue is entitled to retain possession of any property when such possession is unlawful in the civil sense, one would have thought that the regulation of the consequences of that would have been dealt with in s 134 of the Act which is headed “Protection of Property Interests”.  As already mentioned, s 134(1)(c) is a provision which deals pertinently with property not owned by the company but in its possession; but there, as in s 133(1), what is forbidden without the written consent of the supervising practitioner is the exercise of any right to property in the “lawful” possession of the company.  This section takes the matter no further.

[43] In its perhaps negatively relevant provisions, s 134(3) provides as follows.

“If, during a company’s business rescue proceedings, the company wishes to dispose of any property over which another person has any security or title interest, the company must –

(a)  obtain the prior consent of that other person, unless the proceeds of the disposal would be sufficient to fully discharge the indebtedness protected by that person’s security or title interest; and

(b)  promptly-

(i) pay to that other person the sale proceeds attributable to that property up to the amount of the company’s indebtedness to that other person; or

(ii) provide security for the amount of those proceeds, to the reasonable satisfaction of that other person.”

[44] Quite what is meant by the concept of “title interest” is perplexing.   The word “title” is frequently used as a synonym for “ownership”, or in connection with the phenomenon of ownership.  The question arises as to why, if it is contemplated that a company in business rescue would be empowered to sell any property owned by another without the owner’s permission, that was not stated in so many words.  The proper interpretation of s 134(3) is of some importance in understanding the meaning of s 133(1) of the Act.  It would not possible for a company to dispose of property not owned by it without the permission of the owner, unless such property is in its possession.  Delivery could not take place without the consent of the owner unless the company possesses the property.  If s 134(3) sanctions the forced sale of any property owned by another, that would be an indicator, and perhaps a strong one, that the moratorium imposed by the Act extends to prevent the recovery of possession by an owner even where the company’s possession is unlawful in the civil sense.

[45] Section 134(3) of the Act provides that without the prior consent of the so-called “other person” (i.e. the person with “any security or title interest” over the property), the sale and delivery (which is what the word “disposal” must indicate) can be executed if the proceeds would be sufficient to “discharge the indebtedness” protected by the person’s “security or title interest”.  The section goes on to provide that there must be prompt payment to that other person from the proceeds of such a sale “up to the amount of the company’s indebtedness to that other person”. 

However, as between an owner of such property and the company there is no “indebtedness” owed to the owner merely because it is the owner.  If one regards the section as authorising the sale of any property owned by another, then it is difficult to see how the sale proceeds “attributable to that property” must be paid only “up to the amount of the company’s indebtedness to the other person”.  From where does the indebtedness spring?  Surely, to the extent that the value of ownership can be reduced to money terms, whatever the sale proceeds attributable to the property may be, the full amount represents the owner’s interest and entitlement.  The value of property to an owner in money terms is the highest price offered which the owner is willing to accept.

[46] I conclude that the concept “title interest” is closely related to the concept of a “security interest”.  Each is an interest in specific property.  An example of a security interest would be the interest of the holder of a notarial bond over movable property owned by the company.  An example of a title interest is the interest of a seller of property to the company on credit, where ownership of the property is reserved to the credit grantor to protect itself against losses in the event of default by the company.  In the latter case, for so long as the contract between the seller and the company subsists, the seller’s interest in the property lies in its title, which the seller is bound to surrender if the money owed to it under the contract is paid. The seller’s reserved ownership provides security without the need for the seller to acquire a right in any property owned by the company.  In that sense the seller has a “title interest” in the property, for so long as the contract which gave rise to it subsists.  Section 133(3) allows such an existing contract to be unwound through the sale of the property against the wishes of the seller as long as the proceeds are sufficient to discharge the debt owed under the contract.  But in my view if the contract is cancelled, insofar as the property itself is concerned, the seller is restored to its full rights as owner; its interest is no longer a mere “title interest”.  If, as in this case, the seller is entitled to have its possession of the property restored, that must be done.  If, as is presumably the case here, the contract provided for what the seller/owner should do with its recovered property in order to determine the consequences of any breach of the agreement by the company, it is for the seller/owner to comply with those provisions which are designed to survive the cancellation of the contract.  I accordingly conclude that the provisions of s 134(3) of the Act do not support the proposition that the moratorium provided by s 133(1) of the Act prevents recovery of property possessed by the company unlawfully in the civil sense.  In reaching this conclusion I bring to account also that if s 133(1) does protect a company’s unlawful (in the civil sense) possession of property, it does so indiscriminately.  Its reach is not restricted to property of persons who have money claims against the company which relate to the company’s possession of such property.

THE DIFFERENT INTERESTS OF AN OWNER DENIED POSSESSION AND A CREDITOR

[47] The interests of a company’s creditors who are owed money, and a person whose property is in the possession of the company, are quite different.  Inevitably the money claims of creditors are already compromised by the very financial distress which justifies the commencement of business rescue proceedings.  The business rescue scheme allows the existing claims of creditors to be diluted to such extent as is consistent with the ultimate aim of allowing the business of the company to be

resuscitated.  The position of the owner of property which is possessed unlawfully (in the civil sense) by the company is different.  The claim to possession is unaffected by financial distress.  The quality of the claim does not diminish by reason of the possessor’s financial distress; just as it is not improved by the possessor’s financial good fortune.  If repossession is denied by s133 (1) of the Act, that prejudices the rights of the owner without any promise of improvement in the owner’s rights such as is intended to flow to and for the benefit of creditors with money claims as a result of the adoption and implementation of a business rescue plan.

[48] A company in business rescue which is to continue with its business in terms of an approved plan has in effect the benefit of the capital provided by a full or partial moratorium on pre-existing debts already owed to creditors.  If it requires more capital than that to execute the business plan that must be acquired from a financier, whether it be an existing creditor who sees advantage in providing it, or an outsider.  In either event the capital can only be acquired consensually.  Self evidently the provisions of a business plan cannot compel anyone to finance the business by providing additional capital. On the applicant’s argument it is permissible for a company in business rescue simply to appropriate property unlawfully possessed by it (in the civil sense) for use as its own additional capital.  (I call it capital as, if it surrendered possession to the owner, the company would have to acquire money from somewhere else to replace the thing which it requires to run its business.)  The fact that a business plan may make provision for compensation to be paid to the non-consenting owner of the property for its use is surely indistinguishable from, and no more legally cognisable, than a provision of a business plan which purports to bind a non-consenting bank to make a loan to the company.

[49] That being the case, there is no reason to deny the owner a right to recover possession of its property if it has no desire to allow its retention by the company during business rescue proceedings. 

CONCUSION

[50] In the result I conclude that the interpretation of s133 (1) of the Act which the applicant favours is insensible and unbusinesslike; and in the present context this latter consideration is of obvious significance.  It treats creditors and owners of property possessed without right by the company unequally.  The former are not obliged to assist the company any further whilst the latter would be obliged to do so by statutory injunction.  The former have input into the design of the rescue plan, whilst there is no like provision empowering the latter to do so.  Such an imbalance cannot have been intended and will in many cases result in an imbalance in the treatment of these different stakeholders in conflict with s 7(k) of the Act.  The language used in the provision may well support both meanings I have explored above, but better supports the meaning attributed to the provision in Madodza.

[51] I conclude that the applicant is not entitled to an order preventing the enforcement of the order of this court made on 27 March 2015 because s 133(1) of the Act does not empower the court to grant such an order.  That being the case there is no question of any other relief being granted, as the business plan is incapable of being implemented without the applicant acquiring a right to the vehicle in conflict with the order of this court of 27 March 2015.

IS THE FIRST RESPONDENT’S VOTE   INAPPROPRIATE?

[52] Section 153(1)(a)(ii) permits a company in business rescue to apply to court to set aside a vote by a holder of a voting interest on the grounds that it was inappropriate.  Section 153(7) allows the court to do that after having regard to the interests represented by the person who voted negatively; the provision, if any, made in the plan with respect to the interests of that person; and having regard to a fair and reasonable estimate of the return to that person if the company were to be liquidated.  That relief is sought by the applicant, in addition to the interdict already discussed. 

[53] It strikes me as appropriate to mention that if I had not reached the conclusion I have regarding the ambit of the moratorium with regard to property possessed by a company in business rescue, I would nevertheless have refused to alter the vote of the first respondent.  I say that it appears appropriate to mention this because my principal reasons for adopting this view would have been very similar to the considerations which impel me to the conclusion that the first respondent is entitled to enforce this court’s order of 27 March 2015.

[54] Whilst there are contradictions and inconsistencies in the business plan which ought reasonably to raise the eyebrows of any creditor asked to sanction it, what comes through clearly is that as a result of the cancellation of its agreement with the first respondent, the company to all intents and purposes has no capital.  What is clear is that the business plan proposes to appropriate the vehicle in question as the company’s capital.

[55] In my view the business plan, if approved and implemented, would have the effect of placing almost all of the risks with regard to the business venture, and indeed with regard to the first respondent’s proprietary interests in the vehicle, on the first respondent.

[56] If s 133(1) of the Act does indeed forbid the enforcement of the first respondent’s right to possession of the vehicle, it does not extinguish that right.  (Neither, for that matter, does the moratorium create for the applicant the right to use, as opposed merely to possess, the vehicle. This is especially so bearing in mind that a vehicle is a thing the use of which causes wear and deterioration.  Its use devalues the owner’s proprietary right.)

[57] The business plan postulates the first respondent capitalising the company and for the achievement of that purpose being kept out of its lawful entitlement to possession of its property for over three years.  The plan did not propose merely to compromise the first respondent’s existing claim as a creditor, but sought to compel the first respondent to fund the company, and against its will to submit to a regime of risks, and infringements of its own future rights represented by its proprietary interest in the vehicle.  I cannot discern any basis upon which a court could burden the first respondent with these obligations against its will by declaring its vote “inappropriate”, and in effect thereby giving the plan the requisite approval.

The following order is made: The application is dismissed with costs.